One of our clients is a small family run engineering firm with some neat and rare specialties which would identify them if I mentioned what they were.
They have been doing well and have created a decent net-worth for the owners of a few million pounds, built up over the last decade or so.
The owners have not taken the cash out of the business but consistently re-invest in the company by buying the specialist machinery and technology needed to stay competitive. It's not a large company and employs around 20 people in total.
One of their largest customers is a blue chip engineering concern, it's a huge, worldwide operation.
They have been encouraging our client to concentrate their business by placing "rush orders" and more and more of our client's turnover has been devoted to this blue chip customer.
Then, earlier this year the customer stopped paying their bills. Debt turn went from about 40 days to nearly 200. Calls to the customer resulted in promises to pay but no payment being made. Calls to the buyer / contacts etc. promised that invoices had been authorised and processed, but no money came.
The cash-flow hit on the business has been devastating and we have supported the company by ensuring that there are funds to pay wages and suppliers.
So the client puts in a claim for late payment to their credit insurers. The credit insurers were surprised that the big blue-chip engineering firm wouldn't pay so spoke to a contact who said the debt was disputed due to quality problems and so they would not pay. As the debt was disputed, the credit insurer would not pay either.
The dispute is rubbish. The product is very high tech and made to exacting standards and because of the critical nature of the product each unit is ultra-sound tested and x-rayed. It is then sent to an external lab nominated by the customer for further testing and certificates of conformity are issued and only units that pass are sold to the customer.
The crunch came on the 29th July. Wages were due and we had lent the company everything we could and some extra lending on top signed off by our directors.
It still wasn't enough so receivers were called in and are looking to sell the client as a going concern.
Big customer owes our client over £5m.
Yesterday big customer offered £500k to buy the business from the receivers.
Thieves!
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I'm probably missing something - but - why can't the Client sue the Big Customer for the monies they owe them.
It sounds like they have a solid case as all the checks that are carried out on the product they supply result in the Certificate of Conformity.
Also, I'm assuming the Big Customer would not be able to provide any proof/record of a dispute with the Client.
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>> I'm probably missing something - but - why can't the Client sue the Big Customer
>> for the monies they owe them.
I think that if you've got in a position where you're largely dependent on one customer suing them is high risk.
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Becoming largely dependent on one customer is very poor management.
The receiver ain't stupid, not going to fall for the sell it cheap offer, the claim alone is worth more than that to a claims recovery company, disputed or not.
Last edited by: Zero on Sat 13 Aug 22 at 14:26
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>> Becoming largely dependent on one customer is very poor management.
>>
Preaching to the converted here.
See it time and time again and always warn businesses and even condition loans on the basis that concentrations can't exceed certain limits.
Seen it before with suppliers to the retail market where it used to be a ploy of some high-street rag trade retailers with their suppliers. They put more and more business the way of a supplier then suddenly turn around and say "this price or we will walk".
Last edited by: zippy on Sat 13 Aug 22 at 14:33
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>>Legal action...
Yes, they are trying to go down that route, but in the meantime, the business is effectively dead in the water.
I don't know what Crown Court timescales are like but do know that big blue chip will have expensive lawyers, little engineering co won't.
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>> I don't know what Crown Court timescales are like but do know that big blue
>> chip will have expensive lawyers, little engineering co won't.
It would be High Court (suspect too big for County Court) as it's a civil matter. Same issue with time and lawyers though.
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Favourite move by many supermarkets - get a supplier to deal more and more exclusively and then eventually start insisting on reducing the cost of supplies.
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Before condemning anybody it would be good to know th other side of the story. In my experience these things are never black and white.
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>> Before condemning anybody it would be good to know th other side of the story.
>> In my experience these things are never black and white.
>>
We've sent good people in. Orders are there from the customer, testing certs of conformity are there from the customer's nominated lab. Contract in place instructing business to use that lab. Emails from buyers saying invoices have been authorised.
Obviously there could be other reasons but there is no evidence of problems and payments stopped dead. No part payments for goods that are ok and debit notes for goods that are not ok, which from experience are usually seen.
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Re the dependency on one customer. I spent many years in procurement and it was part of our supplier assessment to assess how dependent they would be on our business. For an ethical company it is not good to hold your supplier’s future in your hands.
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I was sat in the bar of a hotel in Beijing and asked the barman why there were so many girls there all dressed in black tee-shirts. He explained that it was an unofficial uniform and they were all in procurement too ;-)
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>> I was sat in the bar of a hotel in Beijing and asked the barman
>> why there were so many girls there all dressed in black tee-shirts. He explained that
>> it was an unofficial uniform and they were all in procurement too ;-)
Not dependent on one customer tho. If they were, in that sector its called "wife"
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>>
>> Not dependent on one customer tho. If they were, in that sector its called "wife"
>>
And it's a darn sight harder to change suppliers or even test out new models without upsetting the existing supplier!
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>> >>
>> >> Not dependent on one customer tho. If they were, in that sector its called
>> "wife"
>> >>
>>
>> And it's a darn sight harder to change suppliers or even test out new models
>> without upsetting the existing supplier!
Severe contractual penalties too.
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And of course, the longer the supplier contract is in place its much harder to achieve new market penetration.
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Update...
Loans were repaid out of the blue yesterday, including early repayment fees.
Turns out that our client agreed to sell 50% of their business to a rival of the big blue chip engineering concern.
What's more rival co want's the new business unencumbered so has paid of the loans and what is a very cheeky move, purchased the debt the big blue chip engineering firm owes to our client (at a reasonable discount) and is now taking charge of the court case. Apparently the comment was "we will enjoy taking them to court and we can afford it".
The buyer has appointed a chairman but the current MD and directors remain and will be employed as long as they own shares.
They buyer has contracted not to sell their shares to anyone else for at least 10 years (mergers aside).
All staff get a flat rate cost of living increase of £1,500 and access to the group benefits including BUPA and share schemes.
All admin functions will be handled by the buyer (HR etc.) so that our (now ex) client can concentrate on what they do best. All material and plant purchasing will be done by the new owner to get the benefit of their bulk buying discounts.
New buyer has already placed multiple purchase orders for their version of the product that the old customer was buying at market rates.
I hope it goes well for them and I will enjoy the nice bottle of wine received from them as a thank-you.
Last edited by: zippy on Wed 14 Sep 22 at 14:54
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Thieves Everywhere - Dog
