Date of issue: 28th April 2005

THE IMPORTANCE OF MANAGING DEBT IN THE SUPPLY CHAIN

A firm of Birmingham chartered accountants is urging SMEs to review their credit control procedures and implement a robust debt management policy in order to avoid being caught up in the kind of domino effect which is impacting on businesses in the MG Rover supply chain.

Clement Keys, Birmingham says companies should take a long-term approach to business planning while at the same time building in sufficient flexibility to enable them to appreciate and adjust to short-term market developments.

"If your major customer's business fails it is vital that you deal with the immediate impact of that lost turnover and the associated cash flow issues in order to protect your own firm's profitability," says partner Ian Yorke.

"While the Government and agencies like Advantage West Midlands, Business Link and the Manufacturing Advisory Service have acted quickly to put in place business support packages for firms caught up in MG Rover's collapse, this kind of aid is intended to provide some initial breathing space while companies consider their options.

Clement Keys, Birmingham specialises in supporting SMEs and owner-managed businesses which, because the owner fulfils several roles and is heavily involved in day-to-day business operations, can be particularly vulnerable to external market forces.

Focussing on turnover, margin and profitability is key to developing a successful business plan because whatever its IT and HR skills a company must have the appropriate finance basis if it is to operate efficiently.

Opportunities to reduce costs without damaging the commercial viability of the business
need to be considered on a regular basis, while managers also should also look into measures such as credit insurance, which is available for their entire turnover or to cover dealings with individual customers.

Clement Keys advises managers to examine their supply chain closely and take steps to plug any weaknesses. This could mean planning for the future by diversifying into other markets or developing new products/services.

At all times SMEs should aim to conduct business with profitable customer types and avoid becoming overly reliant on a single client.

Corporate finance partner Ross Cocker and his team work alongside the tax partners and other specialists at Clement Keys to ensure clients receive the management consultancy, business planning or taxation advice which meets their specific needs.

"By understanding our clients' requirements we can act as a sounding board and flag up potential problem areas before matters reach crisis point and the business is forced into making a significant proportion of the workforce redundant or closing down a manufacturing operation in a bid to stave off its own demise," adds Ross.