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Reducing SME risks from supply chain collapses

Announcement posted by FCR (Financial & Corporate Relations Pty Limited) 01 Jun 2012

Sydney, 1 June 2012 – The potential collapse of Hastie Group is an important reminder to SMEs of the importance of managing supply-side risks and cash flow,” says Gary Green, National Sales Director for Bibby Financial Services Australia.

“Given the potential collapse of many of the 44 Hastie owned businesses, it is likely that we will see a subsequent cascade of small business insolvencies, due to the whole supply chain being impacted. The immediate unemployment created by insolvencies such as Hastie, St Hilliers and Reed Group creates headlines, but the knock-on effects on smaller suppliers is also hugely significant and often hidden for a period of time,” he said.

“The current economic climate continues to be very tough on non-mining businesses. As a financier of SMEs, we recommend that our clients reduce risk by broadening their supplier and client bases and by conducting credit checks on new and existing customers. In the current climate, with some large, high profile failures and ASIC reporting historically high levels of insolvencies, a ‘concentration’ of debtors and suppliers can expose SMEs to risks of bad debts and supply issues due to insolvencies. We urge businesses to review supplier and customer lists and consider worst-case scenarios as part of their risk minimisation strategies.

“The Bibby Barometer Small Business Survey, conducted in February this year, indicated the vulnerability of small businesses to their biggest customers. We found that 12% of SMEs would have to fold if they lost their two largest customers, and 42% would have to significantly downsize,” Mr Green said.

“The survey also showed the vulnerability of small businesses to bad debt. More than one in three would need to downsize or become insolvent if they had to write off debt of 5% of turnover. 27% had experienced a significant bad debt in the past 12 months, and the overall survival of 22% of SMEs was threatened due to cash flow shortages.

“However, despite the significant risk of bad debts, we found only 20% of the SMEs conduct credit checks on new customers,” he said.