When a customer goes bust...

Given these unprecedented times, some customers will not succeed...

Supplier NAMs that can anticipate the inevitable, can avoid the fall-out..

One way of increasing your team's sensitivity to the signals is to calculate the cost of profit recovery following liquidation. i.e. the extra sales you need to recover lost profit.

Suppose a customer goes bust owing you £240k, and your Net Profit Before Tax is 3.4%, then via NamCalc below, you will need incremental sales of £7,058,823 to recover your lost profit!

Or would prefer to await a call from the liquidator?

The Importance of your Net Margin, when a customer goes bust...

Given that 75 Food Suppliers in the latest OC&C Top 150 Index 2019 (see The Grocer 21-9-2019) have Net Operating Margins of 3% or less, it is worth exploring the consequences of one of their customers going bust, owing them £150k...

On a 3% Net Operating Margin, the supplier needs £150k/3 x 100 = £5m incremental sales to recover the loss...

On a 1.5% Net Operating Margin, incremental sales of £10m!!

Just one of 33 calculator tools in the latest version of NamCalc

Toys 'R' Us sets up $156m fund for trade claims - too little too late...!

The 'vendor reserve fund' will be carved out of a broader budget meant to cover some expenses as the retailer winds down its business in the largest-ever U.S. retail liquidation, Toys ‘R’ Us lawyer Joshua Sussberg said at a hearing at U.S. Bankruptcy Court in Richmond, Virginia.

However, the amount fails to cover total trade claims worth roughly $760m, lawyers who represent trade vendors said at the hearing.

Many vendors believed that payment for shipments after the Sept. 18 Chapter 11 filing would be covered by a $3.1bn bankruptcy loan, but that loan gives priority to lenders and other expenses such as legal fees, lawyers said on Tuesday. [more]

• This highlights the fact that when a customer goes bust, suppliers come last for payment in a list that includes government agencies/tax, secured lenders, and staff...
• For this reason, it is vital that NAMs & KAMs constantly monitor their financial exposure to all customers, given that they are in fact unsecured lenders at zero interest rate...
• Apart from watching for signals from the market that credit insurers are refusing to offer cover (i.e. too late!), a supplier should divide their annual sales to the customer by their (the supplier's) net margin before tax, and multiply by 100.
• This gives the incremental sales required by the supplier in order to replace the profit lost via a customer going bust...