Turnover vanity, profit sanity, cash-flow reality

 

More than ever, all businesses operating in today’s climate need to have constant and rigorous focus to their commercial exposure.

 

Against the current competitive background it is very difficult to contemplate turning away business especially from a customer of long standing.

 

However as business conditions remain difficult we are witnessing a growing trend for companies to squeeze suppliers in various ways. This can take the form of a decision to arbitrarily extend payment terms, decide not to take up previously agreed deliveries or introduce respective price discounts.

 

From a suppliers perspective this erosion of operating margin means that in some instances the best business decision was to leave it to your competitors.

 

When stricter controls are in place over such elements as payment terms and credit limits the result is likely to be a reduction in turnover.  

The upside of such fiscal discipline carries its own rewards. Avoiding defaults by customers is the surest way to protect the company’s bottom line at a time when profits are hard won and losses easy to establish.

 

Making customer service your USP

 

We are operating in times when everyone expects ultimate value for their cash be it the corporate customer or the man in the street.

 

It is a paradox that as times become tougher and business harder to win the level of service offered by many suppliers is falling very short of acceptable standards.

 

From the frustrations of automated answering (devised surely to test anyone’s patience to the ultimate degree) to the failure to meet agreed delivery schedules customers are left feeling that their business is not valued.

 

Little wonder that they choose to vote with their feet. Customer service is not a difficult act to pull off – in reality all that is required is to give the customer the feeling that their business is important and they are valued not just “one of a number” or even worse a nuisance.

 

Those businesses that master the art of customer service will emerge from this current difficult period all the stronger.

 

Forging effective partnerships

 

All too often the focus on the current economic background has accentuated the negative. However one of the benefits emerging from the current business climate is the value that can be placed on a mutually beneficial customer/ supplier relationship.

 

As increasing numbers of business operate on a just in time inventory basis it is vital that a good understanding exists between supplier and consumer.

 

In as much as a supplier will be prepared to go the extra mile to ensure that his buyer receives his goods on time and in good order so it behoves a buyer to ensure that he pays as required and is not abusing the goodwill of his supplier by “pinching” some extra period of credit.

 

If both parties work together in a professional and commercial manner then it will strengthen the relationship and both will emerge from the current difficult situation with a renewed confidence in each other and a better based business for the long term.

 

Commercial post mortem – what have we learnt?

All too often in the course of commercial post mortems, the Management and Shareholders of troubled organisations end up asking “how did that go wrong?” 

 

It is an incontrovertible fact that many companies fail to address problem issues early enough to avoid an oncoming crisis. When in reality the causes of the problems were all too readily visible. 

The signs of a troubled business are all too apparent – these include lack of controls, lack of strategic vision, a demotivated workforce and obsolete or valueless stocks etc

 

Instead of grasping these nettles, often the preferred option is to engage in a variety of exercises ranging from ill judged acquisitions (think RBS/ABN), totally pointless projects such as rebranding or the launch of another product range destined to fail for the above reasons.

 

Inevitably the harsh realities come to the fore but by then for many companies it is to late in the day.

 

Trust –the defining business requisite

 

As trading conditions remain tough more than ever the question of trust is of paramount importance.

 

Operating margins are being squeezed and people are looking for ways to protect their bottom lines.

 

As we saw last year with the meat contamination in “Beef products” there will always be those who disregard regulations or flout the law in the belief that they will get away with it.

 

Consumers should have absolute confidence in what they are buying. The responsibility for that lies with the retailers, who need to be absolutely sure that what they're selling is what they think it is.

 

It boils down to the integrity of the supplier, no matter how many factory audits are conducted or how many QA questionnaires are completed it is essentially an issue of trust and reliability.

 

The same can be said of the buyer, if goods are delivered on a credit basis this should mean that the supplier has every right to expect that the agreed settlement terms are adhered to.

A good relationship / reputation takes time and effort to build and sustain, once damaged it is hard sometimes impossible to restore.

 

A question of balance

There is a growing trend for companies to bully their suppliers over the question of payment terms. It is not unusual for Buyers who hitherto had paid on the basis of 30 days to now demand switching their Suppliers to 90 day payment terms.


Such terms can only be served by larger organisation with adequate cash reserves.


For the small to medium supplier it further ratchets up the pressure as banks are unwilling to increase their credit lines.


For some time companies have sought to stretch the length of their payment terms by all manner of means both fair and foul.


As profit margins are further squeezed by increased operating costs the importance of maintaining cash flow is vital.


Business is hard-won in the current climate, but above all there has to be a commercial raison d’être for any transaction.


Mutual reciprocity has to be the basis for the Customer/Supplier relationship for it to remain worthwhile.

 

Pick your shots

Much media focus has been given to the burst of retail sales in the pre Christmas/ post New Year period. However, when an objective analysis is made the results will show that although retailers moved stock their operating margins were unacceptably low.

With tightening household budgets it should have come as no surprise to retailers that consumers would be hard to attract and some more innovative marketing in the last quarter of 2013 would have paid dividends. As it is Kamikaze discounting makes little commercial sense and the results of this policy is likely to be more casualties in the High Street in the coming weeks

All businesses operating in today’s climate need to have constant and rigorous focus to their commercial exposure.

Against the current competitive background it is very difficult to contemplate turning away business especially from a customer of long standing.

However, there are times when subsequent events show that on occasion the best business decision was to leave it to your competitors.

When stricter controls are in place over such elements as payment terms and credit limits the result is likely to be a reduction in turnover.

The upside of such fiscal discipline carries its own rewards. Avoiding defaults by customers is the surest way to protect the company’s bottom line at a time when profits are hard won and losses easy to establish.