Next in Line?

The collapse of Carillion may seem to have a limited impact on the promotional goods industry, but beware the ripple effect, says Mike Collins.

“They’ll pay me, I’m sure, they’re too big to go bust…”

We recently reported on how the demise of Dukes of London would directly impact upon the merchandise sector. We concluded that the most important thing to learn is how we must in the future, identify risk differently, in order to hopefully avoid repeating large credit exposure.

Hot on the heels of Dukes comes the catastrophic collapse of construction giant Carillion. Maybe at first thought the collapse of a behemoth from an unrelated sector may not concern either suppliers or distributors but there are key pointers that all industry players need to recognise, especially distributors, to ensure that they do not become indirect victims of Carillion’s demise.

Carillion’s failure has been on the cards for a while. Numerous indicators were there, some were even declared openly and publicly – they just weren’t taken notice of.

So how can the promotional goods industry learn from this and protect itself from secondary Carillion ‘domino-effect’ fallout?

Let us provide some answers:

1. Review credit limits

Are your customers above the agreed or recommended levels? You’ve agreed credit limits at the start of the business relationship. If you’re supplying more but still not being paid this maybe an indicator the debtor is over-trading. They’re doing business but not generating cash-flow to pay debts, which is a clear concern.

2. Due diligence

When did you last credit check all customers? Carillion informed the City of several profit warnings but continued to be supplied on credit. Any adverse profit/credit information illustrates a trading downturn or changes in financial stability. Both are a worry.

3. Have a plan

Review your methods of chasing overdue monies. Carillion’s creditors may have been of the mindset that they couldn’t go bust. No company is exempt from being asked to pay for late invoices, irrespective of size, or what value they owe you. Don’t be scared to ask for overdue sums – the debtor knows it’s overdue and is expecting contact. Act before it’s too late.

With Dukes’ collapse fresh in the mind, many are beginning to appreciate that the consequences of insolvency are far-reaching. Initially it is the direct suppliers of Carillion that suffer pain. However, some of those very same Carillion suppliers with an inevitable cashflow hole (crucially yet to be shown up until their next accounts are filed) will inevitably be forced to pass their pain down the supply chain. Time will tell whether this will manifest itself in slower payment practices, or worse still their own future demise. The question is how many such exposed businesses already take supplies from promotional goods distributors?

Distributors need to ask themselves if they know whether their own construction-based customers either dealt with, supplied and/or suffered direct losses from Carillion. If they don’t know then they most certainly should find out now, before they automatically process that next sizeable order on credit.

In conclusion, there are some key questions you must ask yourself:

  1. Do we supply products to the construction industry either directly or indirectly?
  2. If so, where in the supply chain do we come?
  3. Is Carillion relevant to us?

Where you are in the chain, you should always look after yourself. Frankly, companies with the best systems in place will be the ones that ultimately fare best. Ask yourself, do we have the skills and processes to avoid being passed this problem?

If you’re not sure, don’t worry, help is at hand – you just need to take action. Implement the BPMA support package on offer and start benefitting from good old-fashioned advice and expertise sooner rather than later.

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