Managing Supplier And Customer Impact On Cash Flow

Loss of supply, or the collapse of a customer can send many other businesses to the wall in a domino effect. However, there are steps that can be taken to reduce this effect, and help the business survive even if those it deals with struggle.

1. Review terms of trade - Ensure that there are up-to-date and signed terms of trade with customers. Consider obtaining personal guarantees from the directors of customer companies that can be used in the event of non-payment. This will help make sure that your business is first in line for payment if anything goes wrong with the customer.
   
   
2. Retention of title - Businesses that supply goods should ensure that terms of trade include an "all monies" retention of title clause. This means that, until the customer has paid for the goods in full, the supplier retains legal possession.
   
   In the event of the insolvency of a customer, such a clause will provide a greater chance of the supplier being able to repossess goods. Consider having terms of trade printed on the reverse side of invoices so there is no chance of confusion.
   
   
3. Monitor debtors - Review debtors' ledger regularly and ensure that no further credit is granted to customers who have exceeded their trading terms. Make sure customers pay on time. Keep an eye on credit limits and consider reducing the limits of those customers who pay outside of trading terms.
   
   It may be hard and many business owners are afraid of upsetting key customers, but the fact is, a customer that doesn't pay is not worth having.
   
   
4. Review costs and expenses - Move to a variable cost structure as much as possible. Review costs and minimise non-essential expenditure. Align costs with revenue.
   
   
5. Communicate with suppliers - Business managers and owners should keep in constant communication with suppliers to help understand how their business is travelling. Develop a contingency plan for key suppliers on how to obtain supply of goods or services should that supplier fail. Do the changed trading circumstances offer alternative suppliers at better rates?
   
   
6. Cash flow - If your business is suffering cash flow problems, discuss this with suppliers and seek their support. If they can see you managing the problem, especially if it is a short term issue, they are likely to be sympathetic. However, if they find out only by non-payment, they are less likely to be helpful or trusting, and more likely to stop supply and take recovery action.
   
   
7. Have access to regular and accurate financial information -  Access to timely financial reports on the profitability of the business will enable business managers to quickly identify and address poor performing areas. 

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