Companies need to ensure that they do everything they can to protect themselves from bad debt, writes Will Clark
The collapse of Time computers is yet another warning to suppliers in the retail sector that they must protect themselves from the risk of bad debts by not extending too much credit to shops and stores.
Following poor sales announcements by major high street names such as Boots and Marks & Spencer, plus the collapse earlier this year of department store Allders, many retail suppliers could face some serious financial problems if their customers cancel orders or, worse still, go bust.
There is a danger that suppliers can put all their eggs in one basket, believing they are safe because their customer is a well-respected high-street name. But the fortunes of retailers such as Time have turned upside down remarkably quickly. Unless firms have access to very detailed market reports and trading information, there is no way that they can always be up to speed with the underlying stability of their customers.
Credit insurers , insurance brokers and economists all specialise in monitoring industries and tracking the fortunes of companies, so retail suppliers should seek out such expert help. But there is more that suppliers can do with their own credit management processes to protect themselves without damaging relationships with their customers.
We have developed a three-point strategy designed to help businesses eliminate risk and ensure that their trading remains safe and successful.
The first is to get market intelligence on your customers. It is vital to get as much information on your customers from professionals, credit insurance brokers, the trade and financial media, or even business colleagues trading with the same retailers. If you hear of problems with your customers, discuss your concerns with them directly. If they cannot ease any anxiety you may have, then you might have to consider more drastic credit management action.
Second, tighten up your credit management. Ensure your customer has agreed to your payment terms and that your invoicing is correct and timely. Always chase invoices as
soon as they become overdue and take out credit insurance for added security on future shipments if you have not done so already.
If you are having problems getting paid, consider using a collection service, which will work with you to recover your money without damaging your customer relationship. If you are concerned about your customer’s financial stability, reduce lines of credit, agree shorter payment terms and even demand cash up front.
Finally, spread your risk by adding new customers to your business. If one customer accounts for the majority of your business, it may be worth looking for new customers to increase your income streams and spread the risk.
This is particularly true if you are one of a number of similar suppliers to a retailer. If, however, you are the only supplier of a particular product line, then you are in strong position as the retailer will rely on you. Use this to leverage faster payment of invoices.
Security firm set to become part of acquisitive Shearwater Group
Distributor merges three northern sites into one new hub in Warrington
Activist investor puts forward five director candidates as turmoil continues at security giant
Nima Green asks what is driving public cloud uptake in Germany