What do I have to manage? Supplier Support.

Wednesday, October 20th, 2010

Some of the most important role-players in your business are your suppliers.

If they don’t supply on time it can disrupt your business and cost you money.

If they don’t supply at all because you haven’t paid your account, it could be terminal!

Most small businesses that are having financial problems, have very poor relationships with their suppliers. They treat them badly! When they want goods delivered they scream and shout, but when they’re expected to pay for those goods, they’re nowhere to be found.

Small business owners need to get their minds right about their relationships with their suppliers. Here are a few ways:

THE CREDIT AGREEMENT

When completing the Credit Agreement with a supplier, make sure that you have answered all the questions honestly and completely. Suppliers will ask for a number of things, to assist them in lessening their risk. The most common are:

  • A set of your financial statements.
  • A suretyship from yourself as surety and co-principal debtor for the debts of your business.
  • Cession of the book debts of the business.

If you don’t want to supply these then don’t do so. Simply say ‘No’ to the request for financial statements, and cross out the sections that deal with sureties and cessions. If the supplier really wants your business, he’ll more than likely accept your amendments – the decision is actually his at the end of the day.

TREAT THEM LIKE SHAREHOLDERS.

Because that’s what they really are!

If you’re a small business owner, most of your larger suppliers will probably have injected as much, if not more, capital into your business than you did. They will have done this by extending credit to you and by carrying a degree of risk in doing so. As a result, they should have a right to know how your business is doing, so that they can monitor that risk.

They should, but they usually don’t.

Even though it’s generally not expected, extend them the courtesy you would to an investor by keeping them in the know. I would suggest that for your key suppliers, you make time to meet with one of their decision-makers and have an open and frank discussion about your business, some of the problems you may be facing, and what you can do about them. You may even get some unexpected assistance!

At the end of the day, it is vital that you see the marketing process being driven by a team effort – and that team is you and your suppliers.

KEEP THEM INFORMED OF DEVELOPMENTS

This is particularly important when your business is ‘in distress’. Suppliers will be very aware that something is wrong as soon as you start delaying payments or making excuses for not meeting your commitments. However, most of them will only resort to legal recourse when there is no other option. Experience will have taught them that the only people who win in those circumstances are those in the legal profession.

So – what are the kind of things they will want to know from you?

  • Is your problem serious?
  • Is it a short-term problem or something that will continue indefinitely?
  • What are you doing about it?
  • When can they expect some form of payment?
  • How much can they expect?

If you don’t have accurate financial records you will not be able to answer any of those questions with any certainty. Uncertainty breeds suspicion and suspicion can result in unnecessary litigation – not to mention a loss of credibility which will affect you for a long time.

Make sure your records are up-to-date so that you can keep them informed of developments. They need to know that you are confident about the performance of your business and that you know where it is going.

There is also another way of keeping suppliers informed – indirectly – and that is through the auspices of some of the Credit Guarantee insurers. These insurers are being used by more and more suppliers today, to reduce the level of risk they have to carry. Before the insurers provide this cover they like to carry out a fairly detailed assessment, and in order to do this they require information. It’s the only way they can quantify the risk they will carry. Interestingly enough, many of these credit guarantee insurers make risk assessments without accurate information – and when this happens, you can rest assured that the assessment will not be in your favour. Quite naturally, this will be conservative and as a result, detrimental to the business being assessed. It is in your interests to provide them with as much relevant, and if possible, certified financial information – even if it hasn’t been requested. You will be surprised at the support you get.

NEGOTIATE A PLAN OF ACTION

Once you know you’re in trouble, you’ve got to find out what it will take to get you out of it. Once you know the parameters for turning the business around you can begin to negotiate with your suppliers on the basis that you need their support to make the plan work. Remember – you’re treating them as shareholders now!

Most suppliers will gladly give that support if:

  • They are able to see the plan and can buy into it. I have known suppliers wait up to two years for their money, and even continue supplying on account, because they have felt confident the business will turn around.
  • They have been involved from the outset and whatever has been planned has been adhered to.
  • Whatever you have said you will do, you do. So, when making commitments, it would be wise to err on the conservative side, to give yourself some leeway in the event of an unexpected circumstance.

It is at a time like this that you will need to be able to fall back on those soundly-built relationships. Provided they have been based on mutual trust, this shouldn’t be too difficult.

I must add a word of warning at this stage. It is quite clear that LEGALLY, by admitting that you cannot meet the terms for payment of your account as laid down in your credit agreement (and you will effectively be doing this once you start to negotiate a payment plan.) you will be setting yourself up for some unscrupulous creditor to ‘have a go’ at you in court. He will have sufficient grounds to obtain summary judgement against you in respect of your indebtedness to him. If it is only one supplier it may not be too bad but this can have a serious domino effect if all the other creditors take fright and ‘have a go’ as well!

So, it would be wise to consider all your options – talk to all your major creditors and sign nothing until you are certain that they have bought into the plan. In my experience, I have only ever come across one creditor who was prepared to write off his entire (and quite considerable) debt, purely to have revenge! This is rare, but we must be aware that there are idiots out there willing to shoot themselves in the foot!

PRO-ACTIVELY COMMUNICATE

One thing that suppliers hate with a passion is the customer that won’t communicate. When businesses go through tough times, the person responsible for paying the bills invariably goes ‘walkabout’ to coin a phrase. He’s either “not available”, or “he’s in a meeting”, or “he’s off sick”, or “he’ll get back to you” – and then he doesn’t!

Or, – you manage to get through to him and he gives you a long story about why he can’t pay your bill and promises to come back to you the next day. And then he doesn’t!

It makes creditors very jumpy! And ‘jumpy’ creditors are liable to do irrational things which can have a seriously terminal effect on your business.

Once you’ve opened the lines of communication by informing them of developments, and then by negotiating extended payment terms with them, keep those lines open by being pro-active. Don’t wait for the creditor to phone you. Make it a habit to call every one of them, weekly if you must, but at least fortnightly, to let them know how the process is going. Tell them the truth! A creditor that knows what’s going on is a creditor that will support you all the way.

AND IF THINGS ARE REALLY BAD?….

Whatever you do, if things are really bad and the light at the end of the tunnel is the train coming your way, – don’t, and I must stress this again, – don’t keep buying from your suppliers, knowing that you will be unable to pay them. This is just dishonest and tantamount to theft. I have known people who continue to support their profligate lifestyles out of funds that are actually due to their business suppliers. Why, I don’t know – because common sense must surely tell them that it has to come to an end at some stage?

The courts are taking a dim view of company directors/members who carry on trading in insolvent circusmtances – they regard it as reckless trading. As far as the courts are concerned, reckless traders are corrupt and may be held responsible for the debts of the company in their personal capacities as a result.