Not paying Suppliers

optician

I have noticed a lot of business who are struggling during the recession are building up debt with one supplier and then changing suppliers and never pay the initial supplier.
How do they get away with this?
Do the Suppliers just not bother taking legal proceedings or is it just too much hassle?

Hogzy

optician wrote: »

I have noticed a lot of business who are struggling during the recession are building up debt with one supplier and then changing suppliers and never pay the initial supplier.
How do they get away with this?
Do the Suppliers just not bother taking legal proceedings or is it just too much hassle?

Im assuming that this would breach their supply contract. The suppliers are probably within their right to sue for the money. It all depends on the terms of the contract but specific performance could be sought by the suppliers.

Reloc8

The decision to litigate is a fraught decision.

From the supplier's point of view it will usually come down to :-

1. Do I value the business relationship sufficiently to try and trade it out.

2. In what time frame can I recover what I'm owed by legal proceedings versus trying to agree schedules for payment that both businesses can work with.

3. Even if/when I do cut off supply is the target business likely to be able to satisfy any Order of a court that I can procure or am I throwing good money after bad ?

Nobody could sue for specific performance of a contract to supply goods/services where they are in default in respect of payment for goods/services already supplied.

From the supplier's point of view, in case of a new customer, its a matter of knowing your customer and your industry. If you see somebody you've never seen before come in your door looking for supply you have to try and take steps to satisfy yourself that you can expect to be paid.

Joey the lips

From my experience Legal procedings take too long this is why its done.

A good credit control dept will ask questions.

Anyone who allows a new customer a credit limit these days more than they can afford to loose is asking for trouble,

Credit Controller

Run up a bill and change supplier is a classic. I have come accross companies doing this with 3 and four suppliers. They then pay off the first one and get credit again. This way they stretch 30 days out to many months. They get away with it because our legal system is not set up to deal with these quickly and cost efficiently. we do not have a credit bureau(ICB is only for the banks) and most Irish compaies fail to invest in their credit control.

If you do not have the right credit control policies and resources you will be robbed.

castie

Worked for a pub group that did this to the extreme.

Not only did they hop suppliers but they used multiple businesses.

So build up a debt with Heineken/Diageo and then start ordering extra stock from another premises to cover both places.
Eventually went bust.