With the growing financial distress for third parties including key customers and suppliers, even businesses that are currently in a good financial position should take action to reassess their business and investigate how the failure of a key partner could disrupt their business, whether through an interrupted supply chain, or loss of custom.
Protection from third party insolvency
As with any financial worry, it’s important for businesses to take action as early as possible to protect themselves against the potential loss of contracts with suppliers or customers. The first port of call should be to review contracts with third parties to ascertain whether protections written into the contract will still be effective in the event of insolvency. By strengthening legal, financial and operation protection, businesses stand to much more effectively mitigate the risks and potential effects of losing a key partner to insolvency.
Whilst reviewing contracts at the earliest opportunity is vital, businesses should also continue to monitor their suppliers and customers, and ensure that they have operational plans in place for scenarios where key partners face financial difficulties that could have a knock-on effect.
It’s important for financially stable businesses to seek out new strategies to further strengthen their business, for example, providing additional products or services, or finding ways to increase the efficiency of their business, via a different supply chain, or appealing to new customers. Implementing new ways to add value to the business could make all the difference should an important supplier or customer become insolvent.
The earlier the action, the more resilient a business stands to be should a third party fail.
Supplier and customer insolvency warning signs
In order to be able to take proactive steps to find appropriate operational and legal solutions to weather the storm of supply chain disruption or customer insolvency, businesses can look out for the telltale signs that a supplier or key customer is in financial distress.
Are their accounts filed in a timely manner?
Are County Court Judgments served on them?
Are winding up proceedings pending?
Are they delaying payments or stretching supplier credit?
Do they have credit insurance?
Have there been significant changes in the management of the business?
Are they making spurious claims?
Has additional security been granted to an alternative funding provider
Advice for protecting your business from customer or supplier failure
For businesses that are worried about the risks associated with suppliers or customers in financial distress, it is always important to seek impartial advice from a licensed insolvency practitioner.
At BEACON, we can advise on the importance of monitoring supply partners and key customers to identify potential financial problems, along with the steps businesses can take to mitigate the risks associated with the failure of third parties. To arrange a free initial consultation, call 02380 651441, or get in touch here.