It is difficult for SMEs to protect themselves from the impact of another company’s downfall, especially if that organisation is located offshore. In the event of the failuyre of partners or distributors, they are usually forced to wait some time for payment.
And late or non-payment by customers is one of the primary factors behind cashflow issues that potentially affecting businesses’ ability to remain operational. Interrupted cashflow may prevent SMEs from paying their employees or purchasing stock, and they may collapse altogether as a result.
One company’s collapse may act as a trigger for the same thing to happen to others that rely on its payments for their cashflow. Such events can place immense pressure on businesses, so it’s important to be prepared for them. We recommend businesses to take five key steps to prepare for the potential collapse of a distributor:
- Be aware of the financial position of the businesses they currently or plan to work with, including high gearing or losses and mismanagement of industries or resources.
- Register goods supplied to customers with the Federal Government’s national online system, the Personal Property Securities Register (PPSR). Businesses that register through the PPSR are in the best position to recover their goods if payment is not received or the customer has gone broke.
- Keep payment terms as short as possible by issuing invoices promptly.
- Know when payments are due and when payment is likely to be received, and be prepared to follow up late payments.
- Protect the business from late or non-payments with contracts, trade agreements, and trade credit insurance.
Business success depends on planning carefully. By putting preventative measures in place, you can reduce your exposure to risk when faced with the collapse of a distributor.
Mary Ibrahim, Head of Client Services, Atradius
