Support your suppliers – pay them!
Do you know the true cost of finding a new supplier?
One of the issues that has come to the fore in the past year or so is the importance of supplier viability.
What in many cases seemed like a simple relationship often turned out to be a lot more complicated when the demise of a supplier – particularly an SME subcontractor – created the sudden need to find a new one.
Little details and assumptions that are taken for granted are lost, not to mention the disruption to deliveries, quality hiccups and unavoidable frustrations as a new supplier gets up to speed with an unfamiliar component.
So now things look as if they might be getting better the pressure on these suppliers must be reducing? Sadly not. Ramping up business after scraping along in hibernation mode is often the most dangerous time in terms of business failures.
Cash flow, not cash, is king as companies take on new orders, invest in materials, put staff back on full-time working, deliver the goods and then wait – and wait – and wait to get paid.
In normal times this is just one of the things you have to live with as an SME – the overdraft takes the strain. But these certainly aren’t normal times and for small businesses the credit crunch is still hitting hard – and if they can’t pay their bills there is nowhere to turn and they face insolvency.
The banks are still reneging on the assurances they gave to government that they would increase the availability of credit to small firms. And while lobbying by organisations such as the Forum of Private business and the EIA may open up access to alternative sources of credit it is not going to happen straightaway.
So the answer is in your hands. When your accountants weigh up the financial benefits of extending payment terms to sixty or ninety days, make sure that they are also aware of the real cost of finding a new supplier. And that includes market share lost through breaks in supply, longer lead times, a decline in product quality and extra stock to cope with all these problems. Finally, don’t forget to factor in the one thing that can’t easily be defined with KPIs – goodwill.
Andy Sandford
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