How can you manage supplier relationships during bankruptcy or insolvency?

Honesty during the process of bankruptcy is not to reveal the debts that are mounted against the corporate. It is best to be honest in assuring them that resolution is the top-order thing that they are persuing. Any attempt to Excess commit and issue further promises and guarantee mixed in urgency could further hamper the already troubled relation. Professional team to talk to the employees and vendors would be an option to look out as the management can focus its effort in resolution than providing assurances.

In my experience, while it is important to be honest, it is also crucial to detail how the situation will be resolved, so there is no panic among suppliers. Many suppliers will ask for payment in advance.

Categorizing and segmenting the suppliers is the best way to take control of your critical and essential suppliers. This also ensures that suppliers are not stopping the essential supplies which can create bottlenecks. In one of the cases, the critical suppliers were paid in advance to ensure that there is no hindrance in its suppliers, the finance team along with the purchase & and production team must be aligned in its role for ensuring payment to essential supplies.

Critical suppliers must be retained. Some may ask for payment in advance to keep supplying. The debtor may also seek alternatives to some critical suppliers, in case it decides to stop supplying. In some jurisdictions, it is possible to provide better treatment for pre-petition claims for critical suppliers who keep supplying products and services to the debtor as an incentive.

In one of the case, the vendor (operation creditor) whose due was highest during the insolvency was called in to help in for resolution. As the supplier was from a similar industry it was easy for him to integrate this business into his existing business. While the moratorium was declared, it gave ample space for him to bid a resolution plan to the company which was in deep trouble, and allowed him to finally purchase the company and settle the loans of the company. The honest attempt by the promoter to let the vendor take control and show his business to convert the supplier to a buyer. The success is squarely due to the fact that the supplier knew that, but for him, the company would resolved without his due being duly considered.

Many suppliers will be very sensitive to clients going into bankruptcy. They will be concerned about claims already incurred due to past supplies and which may be subject to a bankruptcy proceeding. Such claims will be paid within the bankruptcy, and, in some cases, the debtor can negotiate more favorable payment conditions if the supplier keeps supplying. Suppliers may also be concerned about payment of future supplies. They may request payment in advance as a manner to avoid future defaults. In some cases, suppliers may decide to increase the price of supplies, both to address the additional risk and to compensate for any losses caused by the default of pre-filing claims.

Suppliers may become less interested in keeping a relationship with a bankruptcy debtor, which is also a factor that can contribute to reduced supplier performance. It is important to keep the supplier engaged by providing enough incentives to keep the supply in the same conditions as before.

A financial advisor may be important to address suppliers concerns, as it provides comfort that the situation is being taken care of appropriately by a professional. It is also important that the debtor executives keep talking to suppliers as they may have a previous relationship that should be maintained.

The poor performance adds a considerable amount of stress into the market. The suppliers are the first one from outside the corporation who feel the heat of stress and would like to safely take the receivable before this goes out of control. The anxious supplier is more interested in the recovery of the amount and may not honorably wait for their turn to receive the payment. It is better hire professional, train the staffs of the company to handle and keep the communication live and updated. This also increases confidence and reduces the frustration of the front office team who are responsible for communication. The promoter/management is busy resolving by involving multi-level stakeholders and other professionals.