For a small business, vendor defaults and failures can be as serious as customer defaults and failures. As in managing customer relations, there are also a number of steps that can be taken to prevent your vendors’ financial problems (or indifference) from becoming your problem.
From a legal standpoint, a simple and important step is to attempt to reduce your major vendor relations to written, signed contracts. Particularly when dealing with smaller customers vendors are more willing to try to break agreements, push for tighter credit terms, or provide less than prompt deliveries. Putting your vendor agreements in written, legally enforceable form can be a helpful protection in such instances. Businesses that rely on the standard language found on the back-side of their vendors’ invoices and their own purchase orders are often at a disadvantage.
Since financial problems do happen to vendors, the financial standing of a business’s vendors and suppliers can be as important as the financial standing of the business’s customers. Running Dun & Bradstreet reports and reviewing major vendor’s financial statements (when possible) can help verify that your business’s supply chain stays intact.
Finally, it is never a bad idea to look for alternative sources of supplies, material and services. Having a list of alternative vendors can be a definite advantage if one of your major vendors falls victim to financial distress and your business needs to find an alternative source quickly.