With some high profile distributors finding themselves in financial strife, manufacturers and suppliers need to be more vigilant than ever before. Therefore we asked Phil Martin, chairman of buying consortium Cedabond to detail his knowledge of the warning signs to look out for:
In our experience if a company is experiencing a short-term issue it will keep us advised of its situation so that we can help them; it’s one of the many benefits of Cedabond membership.
If they go to ground it’s normally bad news. Fortunately, thanks to the rigorous checks that we carry out before allowing a dealer to join Cedabond, and our ongoing monitoring, this situation happens very rarely. Indeed, it’s worth pointing out at this stage that none of the high-profile dealers to go to the wall in the last 2 years were Cedabond members.
Credit checks are a given, of course, but they don’t always tell the whole story.
For example, on more than one occasion we have seen a company’s credit limit take a sudden dive simply because it has appointed a new director or board member, or it’s been a day or two late filing a VAT or corporation tax return. In instances like these the limit normally returns to normal within 48 hours.
And there are some circumstances that no credit agency can legislate for – we have seen situations where a business with an exemplary credit history has simply ceased trading because the owners decided they have had enough.
One final word of advice. Whilst communication and the sharing of facts and figures across the industry is to be welcomed and is undoubtedly helpful to all concerned, please act responsibly. Speculation and rumour do nothing to help anybody and could put jobs and even entire businesses at risk.
Deal or no deal
Catering Insight has conducted industry research into how to tell the difference between a distributor who is suffering from a short term cash flow issue and one that might be about to cease trading.
We have come up with a few key tell-tale signs that could be cause for concern, as follows:
• If a dealer suddenly wants to start placing orders with a supplier that it hasn’t done business with previously, then it might be because its existing supplier has refused to supply them – perhaps it hasn’t paid its bill or it has reached its agreed credit limit.
• Something else that might be significant is a substantial injection of cash from a third party. With interest rates at a record low in the current economic climate it’s very cheap to borrow money, but in some cases this is an indication that a business is not trading profitably enough to cover its day-to-day running costs and pay its bills to suppliers.
• Suppliers may want to be nervous if they hear a dealer say “we are waiting for a payment from a customer”, as this could mean there is not enough cash elsewhere in the business to cover the bills, which should be a concern to any supplier.
• The dealer’s level of communication could also be another key indicator. If a company is in trouble it tends to stop communicating – phone calls aren’t returned and emails go unanswered.