Lessons SMEs can learn from Carillion collapse

Lessons SMEs can learn from Carillion collapse
hlw Keeble Hawson debt recovery manager, Charise Marsden

Following the liquidation of Carillion, hlw Keeble Hawson debt recovery manager, Charise Marsden, advises SMEs on spotting classic warning signs to avoid becoming supply chain casualties.

“Red flags include reports that Carillion was taking up to 120 days to pay suppliers, with 30 days usually being the standard and payment terms of 60 and 90 days considered special exceptions,” she said.

“Another classic warning sign is that some SMEs in the supply chain have been quoted as saying their invoices were routinely being questioned on the grounds of the quality of the work or goods provided.

“These are classic hints that a company might be in trouble – and that the unwanted side effects could be heading your way in the form of cash flow problems within your own business.”

Ms Marsden recommends companies undertake rigorous checks of all new customers. These include credit checks and references from existing suppliers along with reviewing historic trading and payment patterns to establish potential problems in their own supply chain.

She added: “Alarms should sound if there are sudden unjustified complaints about your goods or services – or if you receive a multitude of invoice queries. As looks likely in the case of Carillion, this can often be an excuse to buy time.

“If you do get into a situation where a client’s difficulties are affecting your profitability – or even potentially threatening your own solvency – it is vital to get the right advice as early as you can.

“Court action can be expensive and has the potential to damage your own reputation as well as those you are taking action against. It should also be a last resort for resolving an outstanding debt – because even if you are successful, you might be behind other creditors in the queue.

“Ultimately, by conducting effective due diligence and seeking out the right professional advice, you can reduce the chances of getting into difficulties.”