What’s the risk from just one supplier?
Suppliers are the foundation that your operations stand on, and some are more important than others when it comes to critical supply. If a key supplier stops supply suddenly (whether through bankruptcy, liquidation, administration insolvency or inability to produce goods or supply services), it has the ability to put manufacturing to a standstill and hamper your ability to provide services.
A classic example of how one supplier can affect your operations is that of Aston Martin, who had to cut its production target by 14% after being impacted by insolvencies at Recaro, and Eissman, who supplied seats and dashboards respectively. Fisker halted production of the Fisker Karma entirely when it’s battery supplier, A123 systems, went bankrupt, ending the product line.
And then there’s the spend already sitting with suppliers in terms of credits. We’ve heard plenty of stories from our customers about this – one had a supplier liquidated-at-zero with £28k open credits lost, another ended up with £23k unrecoverable from just one supplier administration.
The fact is that any company can be affected by even a single supplier insolvency, and it’s important to be prepared for that eventuality and be aware of when it might happen to you.
What can you do to get the best early warning sign?
There are always clues that an organisation is having trouble – delayed payments to their own suppliers, high executive staff turnover, or layoffs, product or service quality degradation, slipping profit margins, chronic cash flow issues… It’s important to note that one single instance is not enough to confirm financial instability, but combined, it should give you a good picture.
But one of the most telling is a consistently low, or lowering, credit score. One low credit score isn’t enough to tell in most cases, but where there’s a trend, there’s always a reason.
What’s interesting is that credit score is often part of due diligence at onboarding, but it’s seldom looked at again in most cases. Continuous monitoring for supplier credit scores allows your team to spot the trending low scores over that indicate a downhill trajectory, and make suitable enquiries and contingencies, such as investigating alternative suppliers.
How does FISCAL help?
FISCAL’s software monitors credit scores for UK suppliers, so you can act and prepare for potential supply chain problems or financial loss. It tracks changes to your supplier credit scores daily, and offers you full transactions and credit context to inform your decisions.
