Attendees at our recent webinar on supply chain challenges told us that late payments or insolvency in the supply chain were among their key concerns. Together with our guest speaker Duncan Swift from Azets, Katie Farmer and John Turnbull discussed the impact on businesses and top tips to help manage the risks.
Insolvency of larger organisations can cause a ripple effect affecting all businesses in a supply chain including SMEs. Even where there is not an insolvency ripple effect, late payments as businesses try and hold onto their cash can cause a liquidity squeeze in a supply chain.
Our top tips for businesses to help mitigate these risks are:
- Actively manage contracts. This might include keeping a centralised record of terms, noting who is business critical, managing performance and understanding termination rights – and see our article on this for further information;
- Get to know your suppliers, so you notice quickly if something changes, and if you are supplying to a large market leading organisation, e.g. a supermarket chain, ensure you know and follow the customer's processes and are aware of any code of conduct that may apply to the relationship;
- Monitor key suppliers or customers at Companies House and/or undertake regular credit reviews;
- Make cash everyone's business – have a "cash conscious" culture in your organisation;
- Have robust credit control processes in place – and follow them. Late payers often pay those who shout the loudest. Escalate if the processes are exhausted and consider your legal remedies;
- Include risk of insolvency of key suppliers in risk assessments. Plan for contingencies – what would you do if a provider of a key service ceased trading? Do you know what flexibility you have in your contracts and/or what timescales might be involved in sourcing or onboarding a replacement?
- Choose your customer carefully, understand the relationship serviceability cost, be prepared to walk away if it stops being profitable or it becomes too onerous (e.g. customer seeks unreasonable credit terms).
- If there are concerns about the impact of cashflow on your own business, take advice early. This can often make a big difference in terms of options for dealing with impacted cashflow.
