Nigel Payne is managing director of Assurant Intermediary
We all know times are hard given the current state of the economy. The impact on household budgets and employment figures has been well documented, but the level of financial distress amongst UK companies is also a real concern.
While the number of corporate failures* has fallen since the UK first officially emerged from recession, 642 companies went into administration in the fourth quarter of 2010 compared with 633 in the third quarter. Compulsory insolvencies rose to their highest level since the first quarter of last year.
What does that mean for intermediaries? Well, think about your suppliers and the impact on your business if one of them went bust. Every company uses a plethora of different suppliers from office cleaners to product providers and whilst it would be an inconvenience if your office cleaning provider went out of business, what would happen if it was one of your more critical suppliers like a product provider or service provider ?
So how well do you know your suppliers and in particular, how well do you know the ones that are critical to your business? How often do you check on their financial stability?
I suspect that most only undertake the review process when they first engage with that supplier. However, if you’ve been dealing with that supplier for a number of years, things may well have changed - particularly in light of the recession. A number of providers have sadly gone out of business in the last two years, some of them owing money to the companies they were providing services and products to. In a few instances, the demise of a supplier owing money has been sufficient to bring down that other company.
If you haven’t done so recently, think about identifying your critical providers and reviewing their financial stability. But what should you be looking for when you do run some checks?
The easy option is to run a simple credit check on the company which would cost you a couple of pounds. From this you can find out a host of things including:
· an assessment of their credit worthiness and how this has changed recently
· a suggested credit limit and contract limit for the firm
· any CCJ’s recorded or adverse comments in their audit report
· the accounts for the previous twelve months - and if they haven’t filed them, that should set alarm bells ringing
· any other significant changes in the company structure
It is in your best interest to annually review and check the financial stability of your critical suppliers. If you don’t, you only may have yourself to blame if the worst happens. While corporate failure is way off its peak experienced at the beginning of the recession, the rise in administrations over the last three months of 2010 do reflect the increasing pressure that many UK firms are facing. For the sake of an hour of your time you have nothing to lose by running a quick check, but may lose everything if you don’t.
