Bumps, managing exposure and how not to get burned

We all like a nice surprise, but nobody likes a shock and avoiding shocks from suppliers should be a central principle when selecting and managing them.  You can’t predict every bump, but you can put measures in place to minimise their impact.

We returned to work in the UK in January to news that construction giant Carillion was in trouble.  Over the first two weeks of the month the news got steadily worse before the company’s eventual collapse.

The ripple effect has been significant.  UK banks have extended over £225 million of support to businesses who have been affected in order to contain the impact on the wider economy.   When a business of this scale goes bump, its suppliers experience all kinds of difficulties.

There’s some practical advice we can offer.   It might sound counterintuitive at first, but as a procurement expert I often provide advice to suppliers dealing with procurement functions (I should make clear that we only ever work “one side of the fence” either with a client or a supplier).

The primary objective for any supplier is ensuring that you get paid.  It’s common for businesses struggling with cash-flow to impose onerous payment terms on their suppliers.

The simple advice is not to accept these and to treat it as a warning signal.   Either walk away or assess the risk and go in with your “eyes open”, meaning you can work smart to get paid.  Engage with the Procurement team on payment terms up-front and understand how their payment process works.   Don’t let it be the last step in the negotiation.

Once the agreement is in place, test how the process works with a legitimate invoice as quickly as possible.  This irons out any problems with you being set-up as a supplier in the first instance, enables you to see how the process works in practice including understanding how queries are dealt with.  Finding out that you’ve not been set up on the supplier system and rectifying it early means that you’re not left hanging around for later, larger invoices to be paid.

I’ve also helped suppliers by working on their behalf.  We know how procurement functions, systems and processes work and we can help suppliers establish effective ways of working with a client that sees both sides get what they need.   

Financial and credit indicators are important and should obviously be assessed as part of credit checking, but they cannot tell you everything.  There are always signs that circumstances are changing in a business and they can usually only be identified and understood through regular and meaningful dialogue.  As a supplier, ensure you’re up to speed and regularly in dialogue and visiting any ‘at risk’ businesses.

By definition, nobody expects a shock, but there’s no excuse for not planning for them.