Supply chain firms urged to protect themselves from failing retailers
The demise of high street names such as Habitat, Jane Norman, and TJ Hughes are leading many suppliers to worry about being paid in the event of any of their clients going into administration.
To help firms spot if any of their clients might be heading for trouble and to help them safeguard their own business, a Thames Valley accountancy firm has put together a list of top ten warning signs that show a retail business might be in difficulty.
Peter Whalley, a partner and corporate restructuring expert at the Thames Valley accountants James Cowper, said: “The collapse of a number of household retail brands points to one thing - the retail sector is not faring well.
“We may technically be out of recession, but consumer confidence is fragile and people are cutting back on spending, which means that for those businesses in the retail supply chain there could be a worrying few months ahead.
“It is therefore vital that suppliers safeguard their own business as much as possible should one of their retail customers go into administration, particularly if they do not have, or cannot, secure credit insurance.”
James Cowper identifies the top ten warning signs as follows:
1.Requests for extended terms or increased credit limits, slower payment of trade accounts, part payments and, worse still, payment of round sum amounts
2. Repeated excuses for late payments – such as unavailability of executives to authorise payments, IT problems or clerical errors by the accounts department (or the bank)
3. Increasing disputes over deliveries, quality control issues or missing paperwork
4. Low morale among junior employees and high staff turnover, particularly, within the accounting function
5. Trading down-market to carry lower-quality product brands or ranges, late orders for seasonal products and excessive use of rummage sales
6. Tired or run-down outlets in need of refurbishment
7. Widespread shop closures
8. Reduced credit ratings with credit agencies and insurers
9. Profits warnings in the financial press, poor profitability or excessive debt levels in filed accounts and/or late filing of financial statements
10. A revolving door to the chief executive’s office!
Whalley added: “By being quick to spot any warning, businesses can act fast to protect themselves. Monitoring the financial press for profit warnings, shop closures, negotiations with landlords or with finance providers and reading about sales of the whole or parts of the business will give a good idea that a retailer may be going through a sticky trading period.”
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