- 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.
Thomas Cook - You Can't Just Rely On Well Known Names
The latest corporate failure, reported by the BBC today, was the holiday company Thomas Cook. After a 178 year history, this iconic company has gone into compulsory liquidation, following the failure of a rescue attempt over the weekend. Whilst the news reports focus on the 22,000 jobs worldwide (9,000 in the UK) which are now under threat, and the 150,000 stranded holidaymakers, the reports rarely mention the plight of the businesses that will have been part of the supply chain to Thomas Cook.
These companies will have been supplying everything from uniforms, to stationary, to catering etc. Everything you need to run a holiday company. Many of them will have invoices outstanding and owing to them, for goods and services rendered. These may not now be paid. They will have to file their claims with the liquidators, and wait to see if any dividend is to be paid to creditors.
Avoiding Bad Debts
The art of granting trade credit to customers has changed dramatically. You can no longer just deal with "big names" and take that as an assurance that you will get paid. The recent spate of failures amongst large, well known brands, continues to reinforce this. The list of names has been long, including many well known high street shopping brands, restaurant chains (including those owned by celebrities) and giants such as Carillion in the construction sector.
Staying abreast of the financial situation of your customers is difficult, and many companies choose to use options such as credit insurance or bad debt protection, in order to delegate this function to experts at avoiding bad debts. Payments can also slow down when a customer is experiencing financial problems, which can make the impact of a customer failing, even worse.
Bad debt protection is an option for invoice finance users. It involves the funder taking the credit risk in the case of customer insolvency, up to an agreed "credit limit". That is the maximum value of sales you can have outstanding to a customer, to remain covered. There can be other conditions such as first loss clauses, that will vary between providers. In uncertain times, the reassurance of being protected against bad debts is becoming increasingly attractive to UK suppliers, who can no longer rely on just dealing with well known brands to ensure that they are paid.