Avoiding the Bankruptcy Chain Surviving in the wake of the Allders
or Rovers disasters

A viewpoint by Sue Stedman of Sue Stedman
Corporate Clothing Limited
 for various small business publications

The recent bankruptcy of Rover made the headlines on an almost permanent basis in recent weeks, not only because of the 6,000 jobs that were lost, but also the knock-on affect to the company’s suppliers.  It is believed that this alone has amounted to up to 20,000 additional jobs being lost.

In this particular high-profile case, the Government’s support to suppliers through the Rover Task Force, led by Nick Paul chairman of Advantage West Midlands will, it is hoped, help to alleviate some of the difficulties faced by Rover’s smaller suppliers.

In the case of other bankruptcies, however, this is not the case.  When the department store, Allders, went into administration earlier this year, many suppliers were left without compensation, and my company was among them.  As a supplier of corporate uniforms to Allders, Sue Stedman Limited had built up a large supply of high quality uniforms which are now surplus, resulting in substantial waste, as well as the loss of a major client.

Sue Stedman Limited attended the creditors’ meeting in April, but we found that only the bank, the Inland Revenue and the pension fund would eventually receive any compensation.  Despite being owed approximately £100,000, as an unsecured creditor we are unlikely to receive any of this money.  Fortunately Sue Stedman Limited has a large and profitable enough client base to enable us to maintain a stable financial situation.

However, there are many small and medium sized companies who worked solely for Allders and will have suffered substantially.  Some may sadly become bankrupt themselves while others will be faced with various problems including the possibly staff redundancies, a lack of funds to invest in business development, and the inability to pay suppliers.  For manufacturers, the results are often more pronounced than for companies in the service industry because large amounts of stock are wasted.

What can companies do in advance to limit the negative affect of client bankruptcy?

Maintaining a diverse client base, where possible, is crucial.  I have been fortunate in that my company has clients stretching across retail, industry, property and the service sector.  While the company suffered as a result of Allders’ demise, other clients’ new orders have compensated for the loss.   Sadly was not an option to the many suppliers to Rover, who had already suffered as a result of the general decline in the automobile industry over the last few decades.   These companies are now being encouraged to diversify, through business support offered by the local Business Links but they will have the tough job of competing against each other in sectors in which they are not experienced.  Where possible, I certainly recommend spreading the risk.

Another recommendation is to keep an ear to the ground and look out for early signs of problems.  The losses to my company would have been much greater had I not received a friendly tip-off from a contact at Allders late last year.  As a result of this advice, I was able to reduce the number of uniforms that were being made.   Had I not been warned, the losses would have been greater. 

Associated with this is the importance of risk analysis.  We all carry out some form of risk analysis prior to taking on a new client, but ongoing risk analysis is equally important.  Whether it is carried out in a formal, structured context, or simply a matter of keeping an eye on the business pages, it is always worth being aware both of your clients’ financial position and the wider environment in which they operate.

Perhaps five years ago Allders and Rover, as big, blue chip companies appeared the perfect client.   However, the irony is that big companies are in fact a big risk, particularly if they are the supplier’s only or main client.  While we are all keen to secure the big clients, we need to be prepared to restrict the amount of credit extended to even blue chip customers.  My observations of other suppliers to Allders has reaffirmed by belief that if any one contract represents more than 20% of company turnover, it carries a disproportionately large risk.

Finally, where possible, I recommend that all suppliers ensure that their customers understand that a successful supplier/customer relationship is a partnership, and genuine collaboration. With a firm basis and a good working relationship, the difficulties that come about in circumstances such as these can be minimised.

My conclusion is the inevitable fact that business is a risk and crises will occur.  In law, there is no redress and as suppliers, we can do no more than to take steps to minimise the effects of the crisis.    But does responsibility extend further?  In the case of Rover, the Government opted to assist suppliers.  I sincerely hope that their involvement was not simply a short-term, knee-jerk reaction to a very public crisis, but that the Government will be prepared to look at this problem from a long-term perspective.  As a start, I recommend that the Government gives immediate relief of VAT on all invoices in association with bad debt.  I hope that other small businesses will join me in highlighting this problem to politicians and encouraging them to take some responsibility in the long term.

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