Bad things happen in threes they say. First it was retailer Maplin entering insolvency. Then there was Toys R Us closing down. Now there’s talk of Mothercare having to seek protection from its creditors after posting two recent profit warnings.
Couple these big brands failings with other high-profile giants like Carillion and, within this industry Dukes of London, then you quickly realise there’s no logic in saying “they’re too big to go under”.
Ripples from high profile insolvencies travel much further than just the immediate suppliers. Unfortunately, many major end-users may also face insolvency now that their ‘meal ticket’ has gone under and this insolvency will likely reflect upon distributors and then in turn suppliers, who will collectively face the prospect of not being paid due to a domino effect.
The big question is how and where will distributors be able to pass their burden of debt on if they happen across just one significant end-user failure?
Some distributors will be more robust, organised and a safer bet than others. There are several reasons for this including having their own organised credit management solutions in place. They supply responsibly with adequate client vetting procedures and promptly pursue overdue monies. This eases their day-to-day situations in terms of operating successful cash flows.
What must smaller suppliers and distributors do to mitigate any ripple effects and prevent future debt?
1. Don’t rely on big-tickets
Tempting as it is to chase a golden goose, recent events show that no business is too big to go under. Use big-ticket invoices to re-invest in practices to also bring in smaller but more frequent residual clients. If you must take on more risk than usual, then at the very least ensure that you get a 50%advance deposit on orders. With normal industry margins built in, this will probably guarantee that you safeguard your own existence, even if a major failure does come along.
2. Invoice sensibly
Distributors, analyse how you are raising your invoices and when. If you have a multiple order for several items from an end user that involves several items over a period of time, try to invoice them separately rather than waiting to raise one big invoice at the end. Non or late payment of a smaller invoice will act as an early indication of bad things to come.
3. Be aware of exposure
Good credit control is about being vigilant and organised. Regularly monitor your credit limits and analyse the payment days of your customers. If you find a customer exceeding both, act to reduce that exposure before it’s too late. End-users fully expect to be chased for monies that are overdue. Don’t be afraid to do so. It is you that is in the right.
We are sometimes told that business is all smoke and mirrors. Recent events show that some of that maybe true. The key for businesses is to reverse that mirror, look closely at yourself and your practices and ask what improvements can I put in place to avoid the ripples of debt pain lapping at my door?
What process and systems can you rely on, to ensure that you don’t suffer the effects of yet another high-profile business failure? If you are unsure and would like any assistance in this area, as always feel free to contact us through the approved BPMA channels.