How Can I Make Sure My Supply Chain Is Financially Stable?

We’ve heard your questions on how to ensure financials are safe across the board when dealing with an external supplier, so we put your questions to our Head of Finance, Bruce Wormald.

What challenges has the construction industry faced in recent years?

2023 was a challenging year for businesses with all sectors being impacted by the combined headwinds of high interest rates, inflation impacting energy and material costs, and high cost of living driving wage demands from employees. 2024 has improved, but it’s still important to be aware of the risks facing the construction sector.

Therefore, it was no surprise that the construction industry in the UK saw several high-profile insolvencies.  This has sent ripples through the industry, creating financial distress for businesses that have been left with significant unrecoverable debts or left in the lurch by suppliers who have not been able to fulfil orders.

How can the bankruptcy of a key supplier impact your business?

Bankruptcy of a key supplier could pose an existential threat to your business and, too often, businesses are caught by surprise.  It can be difficult to detect signs of financial distress impacting a trading partner, but it is necessary that steps are taken to understand and manage this risk.

The first and, arguably most important, step is having access to sufficient, relevant, and recent financial information on the third-party companies making up your supply chain.  However, in the UK private companies have up to 9 months after year end to file annual accounts with Companies House and many companies are only required to file very limited information and often their accounts do not need to be audited.  This means that it is practically very difficult for Companies to manage the insolvency risk inherent in their supply chain particularly in the case of small companies.

What are effective tools for managing the risk of supplier insolvency?

Given the limitations on publicly available data, in terms of practical and effective risk management tools, there is no substitute to building strong relationships with your key suppliers.  In an increasingly transactional and cost-focused business environment it is easy to lose sight of the value of long-term supply relationships with stable and well-run supply partners.  Having confidence that your supplier will still be in business to deliver the product or service you require at the critical point in your project is priceless.

 

To learn more about financial stability, or to see how Sapphire are a truly safe pair of hands for your next development, contact us today.