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A major supplier has entered liquidation – what does this mean for my business?

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A major supplier has entered liquidation – what does this mean for my business?

Reviewed: 17th May 2018

The insolvency of businesses you’re connected with can have a seriously negative effect on your own organisation, but when a major supplier is liquidated the consequences can be devastating.

You need to think about how you’ll meet your customers’ requirements and fulfil their orders in the short-term, the time it might take to get your own business back on track financially, and whether you can find a new supplier quickly enough.

Consequences of a supplier’s liquidation

The liquidation of a key supplier can affect your business instantly, particularly if they were the sole supplier of a particular product line. In this case, a source of income disappears straight away, and one of the main issues is the time needed to secure acceptable terms with a new supplier.

Apart from the fact that these terms may not be as favourable as those you had negotiated with the insolvent business, any significant time lag between your original supplier’s insolvency and finding a new supplier, could cause considerable harm to your business.

Customers might decide to purchase their goods elsewhere, and your business reputation could sustain irreparable damage if you can’t meet existing orders. So what’s the best way to approach the situation?

Focus on your customers

You might believe the solution lies in trying to recover your debt from the insolvent business, but as it has entered liquidation, it’s unlikely you’ll receive a high return from the process as an unsecured creditor, if any at all.

To limit the long-term damage, it’s important to focus on providing high levels of customer service. Neglecting your customer base under these circumstances could quickly result in a financial decline if they decide to take their business elsewhere.  

You should explain the situation to any customers who might experience delays in receiving their goods. This will prevent adverse rumours being spread about the state of your own business, and hopefully encourage their patience whilst retaining their custom.

Cash flow problems

Some customers will require the return of their deposits, and others may need to be paid compensation if they have suffered a loss. For this reason, your business is likely to experience cash flow issues for some time following the loss of your supplier.

It’s advisable to forecast your cash needs on a daily basis, so you can keep tight control over the funds coming into and out of the company. Focusing on sustaining positive cash flow helps you to pay your own bills on time, and remain solvent in these trying circumstances.

Cash flow problems can also be addressed by securing additional finance. This doesn’t necessarily mean you should approach your bank, however, as an application for a bank loan generally takes some time to complete and process.

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Consider an alternative source of finance

Alternative sources of finance such as factoring and invoice discounting are generally very flexible and quick to secure. You don’t need to provide the same level of documentation as required for a traditional bank loan, and your company’s credit rating isn’t generally taken into account.

A lump sum cash injection, or regular inputs of working capital each month, could help your business to cope with the loss of a key supplier, and potentially your income. You should inform your bank of the situation you find yourself in, however, as they may be able to extend an existing overdraft facility to meet your short-term needs. 

Cash is definitely king under these circumstances, and given the fact that one of the definitions of insolvency is the inability to pay bills as they fall due, ensuring your business has sufficient cash with which to operate is clearly a priority.

For more detailed and tailored information on how to deal with the loss of a major supplier, call one of our expert team at Real Business Rescue. We’re liquidation specialists, and will make sure you understand the ramifications for your business. Call for a same-day consultation – we have a nationwide presence, With 55 offices stretching from Inverness down to Exeter, Real Business Rescue can offer unparalleled director advice across the UK.


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