Will You Still Love Me In The Morning?
If Brexit results in a hard landing, some British companies are going to have to shape up. And fast.
Many years ago I chaired the board of a business whose biggest customer was one of the German discount supermarkets. They were also our favourite customer. We loved them. Nothing was too much trouble. Last minute jobs, Sundays and bank holidays, no problem.
Why, you might ask. The answer, that they were the biggest slice of the firm’s business, might seem obvious. There was certainly an element of self-interest in our devotion. But as a rule I would advise any small business to be wary in the extreme of supplying big UK supermarket chains. This customer was the exception. We also loved them because every month, on the 28th, we faxed them a statement [yup, it was really that long ago] and the next working day the money was in our account. As a result, they were always at the head of the queue.
Sure, we had to follow their highly prescriptive invoicing procedure to the letter. Alles had to be in Ordnung. But providing we complied, there was no quibbling, no haggling, no phoney excuses or fabricated delays in settlement. They were straight.
To state the obvious, cashflow is the lifeblood of any business, but for a small one it’s a matter of life and death. Businesses mostly fail not because they are unprofitable but because they run out of cash. And when you need money most, that’s usually when it’s hardest to get hold of, and if you can get it emergency funding is expensive.
Do you love your suppliers as much as your customers?
In my experience as a supplier, business relationships tend to fall into one of two categories. Either they are transactional, just a routine purchase, or they are what you could call committed: each side has invested in the relationship emotionally and ethically. However, in most cases the person at the customer who places the order is not the person tasked with paying you. This is the cause, especially in big companies, of frequent friction. I have lost count of the number of embarrassed – and unnecessary – conversations about unpaid invoices I have had with people who have commissioned work from me. I don’t want to talk about an invoice that has languished unpaid for 45, 60 or even 90 days. Neither does the person at the other end of the line. Having yet another row with Accounts isn’t exactly going to make their day. As a one-time buyer of external services employed by a large organisation, I’ve been there myself, and it’s not pleasant.
Diagnosing the problem is not hard. In the eyes of the individual buyer you are a supplier and you may well be a valued one. If you’re a specialist in your field, it’s likely they buy from you frequently - maybe at short notice, because that’s how life is. If they’re committed to you, then you almost certainly feel obliged to them. So you run hard. You turn the job round at short notice, even if it means working unsociable hours.
But in the eyes of the Finance department, you’re a creditor, and just one of many. The clerical staff dealing with the payment will process you in line with company policy. In too many businesses, that means instructions from the top to weasel out of settling their debts for as long as they can stretch it. In the book of excuses, “that’s how our payment systems are set up” is usually top of the list on page one. One size fits all, even if it harms the business in the long run. In an unequal relationship, it is hard not see this as anything other than a blatant abuse of market power.
Some of you have no doubt been there many times. Carillion is the best recent example which comes to mind, but among too many unscrupulous organisations squeezing suppliers to fund their working capital is just business as usual.
A message to the culprits
Like winter, Brexit is coming. If even half the dire predictions put out almost daily by those opposed to the UK leaving without a deal [actually on WTO terms] come true, then some businesses are in for a nasty surprise. Large swathes of the British economy are going to be subject to shortages and the resulting rationing. If you’ve been treating your supplier base like sh*t for many years, don’t expect them to do you any favours. You’ll be at the back of the queue. And serve you right. If that’s what it takes to shake things up, so be it.
Doing not a lot and really enjoying it ??
5 年At Cranfield on BGP I used to talk about ‘Creditor Strain’ when I was teaching finance. David has touched on this in his excellent article. Creditor strain goes like this: when you pay your suppliers on time, they love you, give you the best deals, pull out all the stops. You’re top of their favourites list. When you pay them 30 days late, they tolerate you, but show reluctance to be massively helpful. When you pay them 60 days late, they’ve effectively shut down the relationship and you will be trading on a ‘cash only basis’ from that point onwards until you recover your credit reputation. But the more worrying aspect of abusing your suppliers, as David alludes to, in times of shortages and when extra help is needed from your suppliers, you have by your own actions (non payment) put a stop to this help. And more worryingly these suppliers will be more inclined to help your competitors - well they need the trade and their cash so loyalty wears very thin. Nice one David.