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Supply chain insolvency
Few businesses are entirely self reliant. Whether you make something, or provide a service, you’ll no doubt have to obtain your raw materials, consumables, or even information, from somewhere else.
The organisation or individual who supplies the resource, or resources, your business needs will also probably be reliant on others to supply what they need in order to supply to you. For most businesses therefore, there’s a co-dependency of supply and demand, with most businesses relying on others to provide what they need to continue trading.
A break in the chain?
What if there’s a problem somewhere in a supply chain you rely on? If a business you buy from directly ceases to supply to you, what happens next? For many products and services, there’s a healthy competition for business, so if a supplier ceases to supply, the logical thing to do is to buy from one of their competitors instead.
This becomes more problematic when your needs are so specific that the company you’re used to trading with is the only one who is really capable of fulfilling your needs. Perhaps you need a niche component, perhaps you’re tied to one company’s proprietary products, perhaps you need supplies in such large quantities that only one supplier is big enough to supply what you need. Also, it may be difficult to open a new account with a supplier that you have not used before.
If you find yourself overly reliant on another company, which for one reason or another couldn’t easily be replaced, then it’s wise to consider what might happen if they ceased to trade.
Forewarned is forearmed
The best way to protect your business from the risks associated with dependency is to eschew dependency from the outset. If at all possible, try to avoid being tied to any essential product or service within your supply chain. If this can’t be avoided, or you’re already dependant, then keeping yourself appraised of the affairs of the firms you’re dependant on is definitely worthwhile.
Although there are always exceptions, businesses in trouble don’t usually disappear overnight. If your essential supplier ends up going out of business, chances are there have been warning signs for some time. Keep an eye out for these and you can avoid being caught unawares.
How can I spot potential issues in my supply chain?
Monitor Companies House
Perhaps the easiest way to keep an eye on a Limited Company is via publically available information on the Companies House website. A limited company must file various documents with Companies House which, as a matter of public record, can be viewed, for free by anyone. There’s also a notification service where you can arrange for an email to be sent to you if a company you’re monitoring files a new document.
Keep an eye on credit reference checks
There are numerous credit reference agencies which, for a fee, can give you information on a company or individual whose financial status you’re interested in. Whether they’re a supplier or customer, if their financial affairs could affect yours, then it’s worthwhile keeping an eye on any changes in their credit status.
Watch out for other signs
Otherwise, there are several other things that might hint at a supplier in trouble.
Perhaps you’ve noticed that the goods or services they supply aren’t up to their usual standard. Maybe they don’t seem to be so well stocked as they used to be. Are the people you deal with, or the management team constantly changing? Have you been approached to renegotiate price, credit, or payment terms ‘out of the blue’? Have there been wider issues in that company’s industry?
None of these, by themselves, are definitive, but a combination of a few of them might signal there are problems and if these problems ultimately lead to the insolvency, bankruptcy or liquidation of your essential supplier, then the more warning you have, the more time you’ll have to plan for how your business will cope.
If all else fails
If you’re already being affected by the demise of an essential supplier and haven’t made contingency plans, then you’ll need to act fast. With so many issues to juggle, promises to your own customers to keep and alternatives to be found, a helping hand and an external perspective might well be just the thing to keep your business going long enough to find a solution and stave off your own insolvency.
As with any problem relating to insolvency, the sooner action is taken, the better the result is likely to be. Give your business the best chance of surviving insolvency within your supply chain and speak to us. We can help.