Keeping supply chains oiled and running in the garden trade
Peter Worrall & Benjamin Millward, specialists in commercial debt recovery at Moore Barlow, discuss the dangers of weak supply chains and how to avoid contractual disputes…
For businesses in the gardening industry, interruptions caused by Covid-19 to the normally thriving sector have made 2020 one of the most unpredictable years ever for this billion-pound contributor to the UK economy. The horticultural industry was predicted to be wiped out at the start of lockdown, but is now picking back up again as consumers turn to home and garden renovations.
Some sectors within the chain may have seen extraordinary rises in demand, but others will have suffered worrying drop-offs, with the result that many people in the gardening industry are now working under unprecedented pressure to make up for lost time. Due to the perishability and easily spoilt nature of plants, the sector faced a total stock write off unlike that of any other industry.
The coronavirus has intensified existing vulnerabilities within this and many other industries. Weak supply-chain links previously lurking in the background – such as creditors being reluctant to provide credit and debtors lacking the cashflow to pay up – have now taken centre stage. And where serious financial troubles propagate, the supply chains themselves can be put at risk.
The new Corporate Insolvency and Governance Act 2020 renders termination clauses related to insolvency unenforceable. This means suppliers in all industries can no longer make continuation of the contract conditional on their insolvent customers settling invoices that were unpaid before they went insolvent.
As for the latest Government (non-binding) guidance on responsible contractual behaviour, it includes being reasonable and proportionate over performance issues and the enforcement of contracts, and acting in a spirit of co-operation.
How, therefore, can professionals in the gardening industry keep the supply chain oiled and running during such extreme times?
Suppliers should certainly review their terms for termination clauses, especially their force majeure clause (which in effect frees both parties from liability or obligation in an extraordinary event).
Arguably the most important attitude worth adopting if you’re involved in the garden supply chain is to be upfront and honest with your suppliers and customers. But perhaps of equal weight is the necessity of really getting to know your suppliers and customers and their businesses as well as you possibly can. There are a number of ways this can be done, not least of which is ensuring that you undertake KYC (Know Your Customer) checks. Don’t be afraid, either, to delve into Companies House and take a good look at them and who they are. Some of your suppliers may also have a track on credit-checking sites.
A traffic-light system can help keep supply chains running
It might also be worth considering setting up a ‘traffic-light’ system – which tells you where performance is on track and where not – depending on the health of your customer. Credit-control systems such as the one we at Moore Barlow use – a cloud-based software system from RSM called Tracker – allow you to “monitor” the financial performance of a company, meaning you get alerted if the credit score declines or if there’s an adverse record registered, such as a CCJ (County Court Judgement). This allows creditors and debtors to act swiftly and engage with their customers.
As for measures to offset problems with payment, it’s worth exploring changes in payment and credit terms for new customers, such as introducing larger deposits or payment up-front. Maybe creditors and suppliers can offer extended payment terms in return for a payment on account. Additionally, you should check your insurance policies as you may well find you have suitable cover here.
You could agree special repayment terms with struggling customers if cash-flow is a concern, and in the aforementioned spirit of co-operation between parties, if things ‘go south’ in the goodwill department, consider the early use of ADR (Alternative Dispute Resolution – solving disagreements without legal proceedings). Equally, consider earlier legal intervention to prevent delays, as this may well help focus the parties’ minds in order to agree a suitable arrangement.
Measures that include revolving supplier agreements and invoice-factoring agreements (funding cash-flow by selling invoices at a discount to third-parties) certainly also have their place, but sometimes such arrangements could be seen to do more harm than good. Cases exist, for example, in which a personal guarantee is attached to such agreements, which means the directors become personally liable.
When all’s said and done, if a supplier or creditor is struggling financially then they should not be afraid to seek advice from an Insolvency Practitioner.
Photo: (L-R) Peter Worrall (Associate Solicitor); Benjamin Millward (Trainee Legal Executive)