- 01 Oct
Mitigating The Risks Of Selling To One Major Debtor
When you land a major customer it can provide a huge boost to your business, increasing sales turnover and generating profits. However, there is another side to dealing with a major debtor, and that is the increased risk associated with your trade being concentrated into one customer.
The Risks Of Selling To One Major Customer
In a previous post I covered the risks of selling to a single major customer, often called a "prime debtor". These include:
Cash Flow Impact
Serious cash flow impact if they pay late - if a lot of your cash flow is received from a single customer, the impact of them failing to pay on time, or altering their payment pattern without warning, can be significant.
We have seen clients that have been close to insolvency due to large, well known companies failing to pay them for work that they have done. We have seen large customers disputing significant balances of debt, knowing that their small supplier will have no option but to negotiate and accept a settlement against the balance that is due.
You can try to mitigate this through good credit control or using a professional credit control service - however the potential for disputes can only be mitigated by having a tight paper trail that demands customer approvals.
Receivables Financing Restrictions
Funding restrictions - if you use a receivables financing facilities (to release cash from unpaid customer invoices), you may find that your funder imposes a prime debtor restrictions to limit the funding against significant customer on your ledger. These work by limiting the concentration that will be funded against any one customer.
Different providers will take different approaches to this, so you can mitigate this problem by comparing the approach taken by different invoice finance companies.
Turnover Loss Related Impacts
Loss of turnover if you lose the customer - it is good whilst it lasts, but the loss of a large customer can leave you with a number of business problems. Firstly, you may have neglected to develop other customers, so that you are reliant upon your sales to that one company. You may have geared up to handle it in terms of staff and resources. That resource may be difficult to redeploy, if you don't have enough other customers.
Spread your customer base as early as possible, perhaps considering some marketing support to help you attract new customers.
Exposure to a large bad debt should they fail - the worst situation of all. If the prime debtor fails, owing a significant balance of unpaid debt to you, you could suffer a significant bad debt. No one is immune from the possibility of failure as has been proven by the recent string of high profile names entering Administration and Liquidation - the latest of these big names being Thomas Cook, the 178 year old holiday company that failed last month. This demonstrates that you can no longer just rely on dealing with large, well known companies.
Options such as credit insurance and non recourse bad debt protection can help you mitigate this risk and possibly save you from taking a potentially survival threatening bad debt.
- 02 Mar
Construction Sector Protection Against Insolvencies
Construction sector companies are urged to think about protecting their cash flow as recent news reports suggest that insolvencies in the sector have increased substantially.A recent report in CityAM (10th of February 2020), states that whilst the total number of insolvencies in the UK has risen by just under 5%, the situation within the building and construction sector, is that there has been an...
- 25 Nov
How To Credit Check A Customer
Granting credit to customers is often a leap of faith so conducting credit checks on a customer can give some element of comfort to the supplier. However, even the most well known, household names can fail.Recent experience with long established brands such as Thomas Cook, Mothercare and Debenhams (to name but a few that failed in 2019), shows that no one is immune to problems that can lead to...
- 23 Sep
You Can't Rely On A Name Like Thomas Cook
Another failure of a well known, long established company proves, yet again, that you can't rely on dealing with a "big name" to ensure that you get paid for services rendered, or products supplied. Sticking to "household names" is no longer enough to ensure that you avoid bad debts.The latest corporate failure, reported by the BBC today, was the holiday company Thomas Cook. After a 178 year...
- 06 Dec
Hospitality And Construction Sectors Top The Insolvency Index
Looking at some figures in Business Money, published from the Creditsafe Insolvency Index, it appears that the hospitality sector (hospitality, hotels, restaurants and bars) tops the insolvency index, followed by the construction sector and then manufacturing. Worrying if you supply those trades with goods or services.Figures from the Office For National Statistics suggest that generally, the...
- 30 Jul
The Risk Of Customer Bad Debts Is Rising
The risk of customer bad debts is rising as there has been an increase in both corporate and personal insolvencies. It is time to protect your business against the risk from customers taking trade credit. Protection against taking customer bad debts is still on offer at present.REQUEST DETAILS OF BAD DEBT PROTECTIONAn article in The Times dated 28th July 2018 reported that personal insolvencies...
- 24 Apr
Factoring For Road Transport Company Cash Flow Problems As Bad Debts Increase
Coincidently, just after posting my article about transportation factoring companies, I saw an article published online by the Motor Transport publication, suggesting that bad debts have risen significantly within the road transport sector.The article sites figures regarding the road transport sector, released by Credit Safe. This statistics show that in the first quarter of 2018, while sales...
- 23 Apr
Retailageddon - Why Are So Many High Profile Companies In Financial Trouble?
Can anyone explain why so many high profile companies are having financial problems? Is there cause to worry about economic stability?I first started really paying attention to the spate of emerging problems when Carillion collapsed, the second largest UK construction firm. Watching some of the social media commentators that have an interest in the credit insurance sector. Since then there seem...
- 26 Mar
Protection For Suppliers To UK Retail Chains
If you are a supplier to any of the large retail chains, you may wish to review your requirement for bad protection following a number of recent news reports from the retail sector.More problems have emerged from the sector as the BBC report that Prezzo, the Italian restaurant chain plan to close approximately a third of their retail outlets, as part of a creditors voluntary arrangement...
- 28 Feb
Maplin Electronics & Toys R Us Enter Administration
Two more large company failures on the BBC news this morning - both Maplin Electronics and Toys R Us have entered Administration.Administration is an insolvency process whereby a firm of insolvency practitioners, the Administrators, take over the running of an insolvent business (one that cannot pay its creditors as they fall due), in order to maximise the returns for creditors of the business....
- 30 Jan
Pulse On Protecting Against Carillion Bad Debts
I had an email from Pulse Cashflow Finance, one of our funding panel, that I thought raised a great point about the recent failure of Carillion. Their clients will not be suffering any bad debts.They have included "bad debt protection" for all of their clients, including those operating within the construction sector, meaning that their clients are protected from taking a bad debt.OK, so it was...