How to Avoid the ‘Ripple Effect’ of Insolvency
Bad things happen in threes ‘they’ say…
First it was the ‘toys for big boys’ retailer Maplins that entered insolvency. Then there was ‘the toys for toddlers’ retailer Toys R Us closing down. Now there’s talk of the’ toys for tots’ retailer Mothercare having to seek protection from its creditors after posting two recent profit warnings.
Couple these big high street brands failings with several other high profile industry giants like Carillion and Dukes of London, you quickly realise there is no logic in the saying… ‘they’re too big to go under’.
Ripples from high profile insolvencies travel much further in the pond of business than just the immediate suppliers. Yes, unfortunately many major suppliers may also face insolvency now that their ‘meal ticket’ has gone under and this insolvency will reflect upon their own suppliers who will face the prospect of not being paid.
However the big question is… how and where are these ‘middle’ suppliers going to pass their burden of debt on ?
What must we, as smaller businesses, do to heed the lessons to be learned from the ripple effect of this debt pain.
1 Try not to earn only big ticket items.
Tempting as it is to chase ‘the Golden Goose’, recent events show that no business is too big to go under. Use the big ticket invoices to re-invest in practices to also bring in smaller but more frequent residual clients.
2 Limit your risk through sensible invoicing.
Analyse what your invoicing for. Can you break an invoice down into parts and invoice smaller but more regular accounts. A none payment of a smaller invoice is an indicator of bad things to come.
3 Be aware of your exposure at all times.
Good credit control is all 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, take action to reduce that exposure before it’s too late.
We were once taught that business is all smoke and mirrors and recent events show that some of that may be true. The key for smaller businesses is to reverse that mirror, look closely at yourself and your practices and ask… ‘what can I do to avoid the ripples of debt pain lapping at my door ?’