Help! My Biggest Supplier Has Gone Out of Business!
by Larry Slusser on March 4th, 2008
A critical supplier has just let you know that they are going out of business. What do you do now? The action you can take will depend on how they are planning to go out of business and the type of company structure their business is, such as a sole proprietorship or a corporation.
There are two very critical steps you need to take right away. First, get a hold of your alternate supplier for the product and let them know you are going to be moving some more business their way. Don’t be desperate, just talk about if they can meet your demand, what type of pricing you will get, etc. Second, get in contact with the supplier who is going out of business and find out what they will still be able to provide (if anything) to you.
If you have paid for product that hasn’t shipped, things will get a little dicey. If the supplier you were dealing with was a sole proprietorship or a partnership, it will remain liable to you for outstanding product. The best way to deal with this is to negotiate with them. You can consider suing for compensation, but if the company has filed for bankruptcy, getting any money will be difficult.
You best bet is to try to get the product you have paid for or something equivalent in value. Plus, is it really worth losing more money through the court system for someone who will not be able to pay you anyway? Check with an attorney about your options and realistic probability of recouping any monies prior to starting legal action.
Signs Your Supplier May Be in Trouble
* Marked drop off in response time to calls or emails
* Long hold times when you call (indicates a staffing issue or lots of problem calls)
* Key employees you may be used to dealing with have quit the company
* Key employees begin asking if you are hiring or know somebody who is
* Nagging supply issues, missing shipping dates, lack of product
* Lack of communication (except when asking you for money)
How to Avoid this Situation in the Future
The best way to deal with a supplier going out of business is to pay attention to the clues ahead of time and move your product orders over to another supplier before they go under. While this is easy to say, it is difficult to put into practice. Good suppliers you have good relationships with can become friends and although having business relationships is important, remember it is business.
You can’t ignore the signs of a company’s impending collapse. While growing companies will face many of these same issues, you will see the growing company dealing with problems and telling you the growth is the reason for the challenges.
Having alternate suppliers is always a good idea, and you will be glad you took the time to have a back up plan and a little business diversified in case your main supplier goes in a different direction.