The performance of a supplier's credit department comes down to a great many number of things, some of which might not be so easily controlled by the supplier's staff. Throughout the supply chain, customers can run into difficulties that prevent the supplier from getting paid when payment is due. Luckily for suppliers, there are a number of ways to increase the probability of getting paid by even the most distressed, or even bankrupt, custome, and these strategies were discussed by Deborah Thorne, Esq. of Barnes & Thornburg LLP in her most recent NACM-sponsored teleconference, "Weathering the Storm: Strategies for Suppliers."
"A healthy company is only as strong as the weakest link in its operational cycle," read one of Thorne's first slides. Indeed, a number of different factors figure in to a company's success, and thereby the success of their suppliers. Whether it's the customer's customers or the customer's lender or some other factor that leads the company into financial trouble, suppliers who are well prepared will be much more likely to ride out any unforeseen problems. "You need to know where all your documents are," she said. "Having a plan is really important."
Many issues arise when a troubled company hits a rough patch and then argues that its terms are the ones under which the original sale was made. Setting these things up beforehand, and clearly stating that the supplier's terms are the ones that apply to the sale, is all part of being prepared for future supply chain challenges. Several battles over whose terms apply can become very costly, even leading companies into courtrooms to settle the matter. "Cases have ended up in front of judge because the parties were fighting over whose terms prevailed," said Thorne. "It's also important in terms of what happens when there's a failure to pay. These are all things that you need to know and if you think it's unclear, before there's a break in the chain is a good time to reconcile them."
In addition to having a plan of action for supply chain difficulties, open lines of communication can be critical for a supplier looking to position itself to get paid. "Probably more than anything your lawyer can do is knowing your customer and keeping those lines of communication open," said Thorne. "If you're talking to a person in your customer's purchasing department, you're far more likely to know if there's something happening there and all of those things are terrifically important in getting a sense of whether or not your customer can pay before the payment is due."
Thorne discussed other ways for suppliers to prepare for customer troubles outside of bankruptcy, as well as several legal remedies within the bankruptcy system that companies can use to protect themselves. For more on NACM's teleconference series, or to register for an upcoming teleconference, click here.
Jacob Barron, NACM staff writer