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Making trade pay

Large businesses are under pressure from government as well as suppliers to provide fairer payment terms. As we all adjust to the ‘new normal’, both large corporates and the SMEs who supply them are looking for solutions that make it easier to manage cash flow around payables and receivables.

Big companies have an obvious incentive to support the smaller organisations that make up their supply chain during difficult times. By helping these organisations maintain cash flow they are increasing the resilience of their supply chain and reducing the risk of products and services becoming unavailable while minimising the need to source new suppliers.

The benefits of this approach were highlighted at the peak of the coronavirus lockdown period when restrictions on movement and reduced demand for products and services saw orders being delayed or cancelled, hitting small suppliers who rely on regular payments to stay afloat.

Leveraging customer credit

There are a number of supply chain finance options, of which the most common is receivables financing. The cost of this finance is based on the credit score of the customer – so small businesses benefit when the risk of non-payment is low – and is a good option when payment terms are long or where the supplier is a relatively young business with limited financial history.

Banks and finance providers refer to a trend towards open account trade (trade that is not supported by a structured trade product such as a letter of credit). The main function of trade finance products is to mitigate risk, so when there is a long-standing relationship between buyer and supplier open account trade can attractive as it is less expensive.

Don’t ignore the problem

It is encouraging to see large businesses willing to work with their supply chain to help them through difficult times. However, it is important that this goodwill is not squandered.

When finances are strained it is vital to maintain communication with creditors. It might be tempting to use lockdown as an excuse to stop talking to creditors or fob them off with ‘out of office messages’, but that is just kicking the can down the road.

Experience tells us that the number of companies going out of business rises when the economy is recovering from a recession and this will be particularly relevant as the coronavirus supports provided to businesses and individuals are withdrawn over the coming months.

Do your homework

The objective here is to create a working capital structure that works for you as a supplier as well as the companies you supply to.

None of these solutions are a substitute for old-fashioned due diligence though. We are constantly surprised at how many small businesses simply accept the credit risk of their customers without performing credit checks.

Combined with the insights available from a cloud-based accounting solution such as Big Red Cloud, this will give you an accurate picture of which customers you should continue to work with – and which you should think about cutting loose.

Marc O'Dwyer

After completing a Graduate program in Marketing, Marc’s impressive sales career began at Allied Irish Banks, Pitney Bowes and Panasonic where he received numerous Irish and European sales performance awards and consistently exceeded targets and expectations. In 1992, Marc’s entrepreneurial spirit led him to set up his own business, Irish International Sales (IIS). Initially, this company was a reseller for Take 5 Accounts and Payroll software. Within four years, IIS became the largest reseller of Take 5 in Ireland, acquiring four other Take 5 resellers. He also found time to set up two mobile phone shops under the Cellular World brand and a web design company offering website design services for small businesses. In 2001, he bought the majority share in a small Irish software business, Big Red Book. At that time, the company was losing money. The company became profitable within two months, and Marc then acquired a payroll company to compliment Big Red Books Accounting products. In 2003, IIS were appointed as Channel Partners with SAP for their new SME product, SAP Business One. Marc sold his Take 5 business and concentrated on developing this new market for SAP As a result, by 2007, IIS was recognised as the largest Channel Partner for SAP in EMEA (Europe Middle East and Africa). In 2008, the IIS Sales Manager bought the Company from Marc in an MBO. He launched Big red cloud in June 2012, the online version of big red book, to date the company successfully converts 59% of trials into sales and the number of customers is growing rapidly. Marc continues to run both Big Red Book and Big Red Cloud which now support 75,000 businesses. He is a very keen sportsman, having played rugby for 20 years, represented Leinster at under 16 and under 20 levels, and league squash with Fitzwilliam Lawn Tennis Club for 10 years. Marc has competed in 11 Marathons, including the London and Boston Marathons, and has completed several Triathlons and Half Ironman races. He has also completed six Ironman Races in Austria(x2), Frankfurt (Germany), Nice (France) , Mallorca (Spain) and Copenhagen (Denmark)

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