When the dominoes fall in business

14th February 2018

When Carillion came crashing down a few weeks ago, the news was dominated by the incompetence (or worse) of its bosses.

The media then quickly turned its attention to the legions of sub-contractors affected by the business’s demise. Carillion was less an infrastructure giant than a massive contractor, farming out its work to hundreds of smaller companies.

It was effectively just a massive project manager.

Even knowing all this, one of my biggest concerns at the time, though, was the domino effect – something that received a little less attention but that was bubbling away under the surface and is yet to fully emerge.

Even now, some businesses aren’t aware they won’t be getting paid.

Many suppliers still don't realise they are even in that chain working for Carillion.

A supplier of a supplier of a supplier might never know who it is really working for. It's only when there's a massive failure further up the food chain that the reality of the situation hits home.

I’ve already written about the lessons that can be learned by Carillion’s sub-contractors. Unfortunately, the lack of due diligence on the part of some of them may cost them dearly.

But there are others who are yet to realise their fate.

So it’s crucial that, if you win a contract, you make sure you know where you sit in the supply chain. It’s all very well having a track record with your direct customer…

… but do you know who the end player is? And everyone else in between?

After all, if any of the pieces further along the line get into trouble, it could be your head on the block.

So it’s vital you ask questions, and be a little suspicious.

Is the order size much larger than usual? Have payment terms been made less attractive? Is that because your own customer is having a tough time from its own customer?

Are there any other indications that the business you’re working for or supplying is on the hook for problems further down the line?
I’ve seen it before. Businesses can be euphoric when they win a lucrative contract. But when you sit them down and ask them if they know how they won such a huge contract unexpectedly, reality can kick in.

Of course, usually there is nothing untoward going on. I don’t want to make it sound like you should always doubt yourself.
But what if there’s a more sinister reason behind it?

What if you’ve won a large order from a new customer simply because its previous suppliers and contractors have walked away?
You may decide to proceed anyway. But at least that decision will be made after taking a conscious risk. And you can take steps to protect yourself, for example asking for a down-payment big enough to cover your costs if things go wrong, so at least you are not out-of-pocket, even if you’re not making a profit.

It can feel cruel to be the doom-monger at a time when the contractor is on cloud nine, but that’s what critical friends are for, and this sort of reality check is crucial in our relationship with our clients, when we manage their finances.

That’s one of the roles of the finance director… being a critical, honest friend, who asks the tough questions that you might – might – overlook.

So if you’d like to have a chat on how we can help you, just get in touch and we’ll get this conversation started.
Because what happens way further along the chain can come back to bite you.

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