The UK is streets ahead when it comes to retail e-commerce, with sales this year expected to top £60 billion, leaving Germany and France in its wake. Boosted during the recession, and further enhanced by the strengthening economy, e-commerce is on an exponential growth curve that runs in direct parallel with the rise in digital purchasing through smartphones and tablets.
John Lewis is currently investing half a billion pounds in its online shopping service as it aims for Internet sales to overtake high street sales within only four years. Which perhaps sheds some light on the challenges that retailers are facing to maintain their bricks and mortar operations. Not only has the high street stalwart BHS slumped into administration, but Next has admitted it might be facing its toughest year since 2008 and sales at Poundland have dropped 4.9% year-on-year in what it describes as difficult market conditions.
Suppliers to the retail sector are practiced at looking out for the warning signs and in recent years have implemented a wide range of credit risk assessments and procedures to guard against payment defaults and bad debts. But this caution hasn’t necessarily been applied to the e-commerce sector, which is a costly mistake.
Selling online, even for established retailers, is expensive to initiate and tricky to get right. Among the bigger issues are the cost of site development and customer acquisition, which are not initially covered by revenue. Resulting cash flow problems can put the organisation under pressure. By comparison with the traditional retail model, e-commerce operators also have lower levels of fixed assets and higher levels of intangible assets such as customers, systems, content and of course, employees. The opportunities for revenue growth, however, are high.
Unsurprisingly in this context suppliers can feel unsure about entering into trade credit arrangements and are likely to want more reassurance if they see that the biggest asset on the books is their own stock.
So how can suppliers assess the risks and balance these against the opportunities? They can start by implementing a smart risk culture at the heart of their financial processes. In short this is about taking control of outstanding debts, getting organisational buy-in to reduce their risk of financial exposure, being more selective about their e-commerce customers and, where relevant, controlling export activities. Here are some guidelines for achieving a smart risk culture that start with improved practices:
The opportunities that the e-commerce sector offers are too good to ignore, but with a smart risk management culture in place, suppliers will be able to put control back into the organisation and increase their own tolerance to risk. It’s a balance worth achieving.
Read the article on Talk Retail: https://www.gtnews.com/articles/steel-sector-maintaining-trade-credit/
Founded in 2000, Tinubu Square is the leading expert in trade credit risk management. Tinubu enables organisations across the world to significantly reduce their exposure to risk, and their financial, operational and technical costs with best-in-class technology solutions and services.
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