On the Increased Risk of Supplier/Partner Insolvency During COVID

Last summer, this blog published an article titled, “When Provider/Partners Fail” which offered a cautionary tale about the dangers facing a contingent workforce management program when a key staffing supplier or other key vendor suddenly becomes insolvent and shutters unannounced. That article highlighted the collapse of a New York payroll firm which left its customers in the lurch. While the risk of insolvent partners has always been there as a potential in the background, the stress of the pandemic has brought the risk to the foreground. Awareness of the increased risk can help organizations be vigilant and ready to act if they should experience the untimely demise of a critical partner. Here’s what you need to know.

The Staffing Industry Analysts have been tracking dramatic drops in profitability among staffing supplier organizations since April 2020 in their US Staffing Industry Pulse Survey Report which was published in July. The report confirms pointed declines in staffing firms’ profitability in 2020 due to the chilling effects of the pandemic on economic activity. For firms that may have been struggling before the onset of the crisis, the current environment may be too difficult to survive. So how to tell if any of your suppliers are struggling and what can you do to protect your operations?

SIA says a bellwether signal to look for is the flight of key personnel from a supplier organization. If key people are being laid off or are leaving for other opportunities, this could be an indicator that all is not well for the health of the provider. Other indicators may include a shift in their service levels away from proactive account management and towards more reactive attention only when challenges arise in the servicing of your account. Also, look for slippage in the on-time delivery of invoice submissions.

To protect your operations, nextSource recommends taking steps to prepare for contingencies should a partner/supplier close up shop. For example, perform a review of the current financial position of your suppliers. Third-party sources of business data like Dun & Bradstreet, Moody’s, Experian and others provide a window into the fiscal health of many business organizations.

Take every opportunity to speak proactively with leadership within your supplier organizations. Seek candid, regular dialogue with them, even between regularly scheduled business reviews. Also, gauge the extent to which they’re reaching out to you to get in front of your concerns. Lack of regular interaction is not only a potential indicator of trouble, but also leads to being blindsided if and when their financial position begins to threaten your operation.

Embark on a campaign of routine and stepped up due diligence. Its no longer enough to just do your due diligence at the outset of any engagement. Review your existing contracts on a regular basis and measure how well suppliers are adhering to the requirements in the language. Verify suppliers are current with their required insurance coverage and other critical facets of their ability to remain compliant with the agreement.

Keep your eyes and ears open to the “street”. That is, listen to what your colleagues in other organizations may be hearing or experiencing with suppliers you might share. The CWM community is a tight knit one and any rumblings you might overhear with respect to the reputation of a supplier are worth investigating a bit more closely in today’s stressed landscape. You can also leverage your nextSource representative who likely has exposure and visibility into a broader array of suppliers than you may interact with on a daily basis. Staying ahead of the curve is essential to fortifying and protecting your contingent workforce management program during this trying time.

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