The swathe of losses incurred by creditors of BHS could have been dramatically reduced by simple credit management, according to one of the UK’s leading business organisations.
And the knock-on effect of these losses, which will have a significant impact on cashflow, could mean that many in the supply chain may never recover.
The stark warning comes from Philip King, Chief Executive of the Chartered Institute of Credit Management (CICM), having analysed the list of some 1,214 creditors owed more than £48 million by the retail giant that collapsed last month (May).
“For many of those listed, BHS would have been their biggest customer and for some, its sudden demise may be the final nail in the coffin,” he says.
Mr King explains that bottom line losses suffered by many of these firms will require huge amounts of sales to recover the lost margin: “On a net margin of 5%, a bad debt of £100,000 will require new sales of £2 million, and for some businesses that might not be possible,” he continues.
“The ongoing issue, having lost a major outlet for their goods and services, is the challenge of trying to find new channels to market. None of the news coming from BHS or its administrators at the moment is good.”
Mr King says that many of these troubles could have been avoided by employing best-practice credit management principles: “Good credit management, and professional credit managers, help firms to better manage risk, identifying problems before they occur, and ensuring that credit is not extended to levels that might be dangerous.”
Not all creditors, however, could have avoided the troubles ahead: “Where a customer is obviously struggling, close management and control of the account can reduce risk and help mitigate against it. Some sectors will have been more at risk than others, but there is never a situation where professional credit management expertise would not have been of help.”
The survivors, Mr King believes, will be those who have avoided putting their eggs into one basket: “Even for those who trade through it, there is always the risk that suppliers will see their name and the amount on the list of creditors and react by restricting credit or terms.”
Some of the amounts, Mr King confirms, are eye-watering, and extend throughout the entire supply chain. They include smaller firms such as a skip hire business owed a few hundred pounds to one clothing designer that is at risk of losing more than £600,000, and a lighting company owed £1.7 million.
“Training companies, recruitment businesses, property firms, security providers and even a local Council are all at risk if trading unsecured,” he concludes.