How do you stop other people’s insolvency impacting your business ?

ISG, one of the UK’s largest building contractors recently fell into Administration.

The likelihood is that there will be a ‘pre-pack’ sale, where the assets and goodwill will be bought by a new ‘phoenix’ company but this won’t stop the ripples of insolvency spreading far and wide.

It is estimated that ISG are/were involved in contracts worth around £1.8bn but that subcontractors have been told to stand down with immediate effect.

‘But I’m not in construction, so how will this insolvency affect me ?’… I hear you ask.

Ripples from insolvencies travel much further than just the immediate subcontractors and suppliers. Sadly some major suppliers may also face insolvency now their ‘meal ticket’ has gone and in turn will pass this pain to their own supply chain who will face the prospect of not being paid.

For example – Subcontractor ABC Limited if forced to write off their £300,000 ISG debt.

They now don’t have the money to pay their Marketing Agency their monthly retainer.

In turn, the Marketing Agency can’t pay their Copywriter Company who was retained externally to create a PR piece for another project.

Finally because the Copywriter Company hasn’t now been paid, they cannot then pay their monthly HR bill that they outsource themselves… and so on and so on.

What can we do to avoid 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 no business is too big to close. Use the big ticket invoices to re-invest in processes and practices to aid in developing your business further to secure more frequent residual clients.

2, Limit your risk through sensible invoicing.

Analyse your invoices. Can you break an invoice down into parts and invoice smaller but on a more regular basis. A non-payment of a smaller invoice by a customer is an indicator of bad things to come and allows you to address a debt challenge earlier.

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 all know that some business is all smoke and mirrors and recent events show that some of that may be true. The key for businesses who deal in credit is to reverse that mirror, look closely at yourself and your practices and ask…

‘Is there anything I can do better to avoid the ripples of debt pain lapping at my door ?’