LEGAL
Debt recovery specialist Kelly Mills suggests that it’s time to test – and strengthen – the links in your supply chain to improve cash-flow
(SUPPLY) CHAIN REACTION The initial shock of Covid left people and businesses reeling; the impact was as rapid as it was immense, and overwhelming in some instances. Throughout 2020 we operated against a backdrop of uncertainty and constant change, supported to a degree by unprecedented financial support from the Government. We don’t yet know what the long term economic ramifications of the pandemic will be. In December the Bank of England estimated UK companies could face a cash-flow deficit in the 2020-21 financial year of up to £180billion; in October it estimated that up to £70billion of that deficit would sit with SMEs. And all that was before Lockdown 3.0 hit us. Across all market sectors, Covid presented its challenges – and exposed existing vulnerabilities. Now, surrounded by continuing economic uncertainty, maximising cash-flow has quite rightly made it back to centre stage for many businesses.
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YOUR SUPPLY CHAIN – CHECK THE LINKS
Most businesses will have experienced some degree of supply chain disruption, whether as a result of a surge in demand, or logistical difficulties in sourcing materials. So how does your supply chain stand up to scrutiny? n Look at your existing suppliers and try to assess their ability to meet your current and future needs. Are they reliant on others to fulfil your requirements? Might they face productivity issues or logistical difficulties in fulfilling orders? This may help you to identify potential challenges and to plan accordingly.
n Be alive to possible warning signs that your suppliers are in financial difficulty - a request for a change in payment terms, late delivery, or reduced communication for example. How you decide to respond will depend on the commercial importance of the relationship, but at the very least try to establish whether this a temporary “blip” or something more endemic. It may also give you an opportunity to re-negotiate a more favourable arrangement. n Ensure that you are familiar with the terms of your supplier contracts. Understanding the contractual rights and obligations of each party will enable you to ensure compliance, identify vulnerabilities and take action where necessary. n Consider your own terms of business – are they still fit for purpose? It may be, for example, that your business has evolved since the terms were drafted or that your terms no longer dove-tail effectively with those of your suppliers. This is an opportunity to consider your ongoing business needs, how best to meet those going forward and to try to address any risks you may have identified.
