Can Your Business Survive a Supplier Failure in Australia?

By Sonja Pfitz

A supplier failure becomes a business risk when you rely on something that cannot be replaced quickly. Most owners watch customers closely but suppliers far less, yet one delay, price rise or insolvency can stop production, delay jobs and put immediate pressure on cashflow.

Why Are Supplier Problems Becoming Your Problem Now?

Payment stress has been building across the economy, and suppliers feel it as much as their customers do. ASIC's figures show 14,152 companies entering insolvency for the first time in 2025-26, a slight improvement on the previous year but still above the long-term average. CreditorWatch data reported in June put the rolling annual insolvency rate at 1.24 per cent in transport, postal and warehousing and 1.13 per cent in manufacturing, with more than 7 per cent of transport invoices over 60 days overdue. (Accountants Daily IT Brief Australia)

A supplier does not need to fail completely to cause damage. One squeezed by late-paying customers and rising costs may delay deliveries, ask for deposits, reduce service or lift prices at short notice, and each of those reaches your business as a cost or a delay. Because your costs move with your suppliers' costs, this also feeds straight into margin, a point I explored in More Sales Won't Fix a Bad Margin.

How Do You Find Which Suppliers You Could Not Operate Without?

Start with a list of your top suppliers by spend, then ask a different question of each one: what would happen if this supplier stopped delivering tomorrow? Spend is a useful starting point, but the suppliers you could least afford to lose are not always the biggest. A small supplier of a specialised component, a single licensed provider, a freight partner covering a difficult route or a subcontractor holding your tooling may sit well down the spend ranking and still stop the business if they fail.

A few questions sort most suppliers quickly. How long could you keep operating without them, how long would it take to find and approve a replacement, does the supplier hold anything you cannot easily move, such as tooling, stock, data or specialised knowledge, and would your own customers accept a substitute product or a delay? Suppliers that score badly on these questions are your real dependencies, and they deserve more attention than their invoice totals suggest. It is also worth checking how much of any one category you buy from a single supplier, since supplier concentration deserves the same scrutiny as customer concentration.

What Warning Signs Suggest a Supplier Is Under Financial Pressure?

Suppliers rarely announce financial difficulty, so behaviour is usually the first signal. Deliveries that once arrived on time begin to slip, quality becomes inconsistent, price increases arrive with little explanation, or the supplier asks for deposits or shorter payment terms that were not required before. Account managers may become harder to reach, key staff may leave and stock availability may tighten. Any one of these can have an innocent explanation, but several together are a reason to ask direct questions.

Changes to the terms a supplier offers you are worth noting as well. A supplier that once gave you 30 days and now wants payment on delivery may be managing its own cash gap, and how you manage your trade creditors can affect how suppliers see you in return. Where a supplier is critical, it is reasonable to check its credit standing periodically through a credit report rather than relying on the relationship alone, and to have a plan that does not depend on it recovering.

Should You Pay Suppliers Upfront or Hold Extra Stock?

Both are common ways to protect against supply disruption, and both come at a cost. Paying a deposit or paying upfront can help secure supply, but if the supplier then fails, money already paid may be difficult to recover. Holding extra stock can reduce the risk of running out, yet it also ties up working capital that may be needed elsewhere in the business.

For imported goods, that trade-off can be even greater. Longer lead times, shipping delays and larger minimum orders can mean more cash is committed earlier and for longer, while replacing a failed overseas supplier may take months rather than weeks.

There are other ways to reduce supplier risk without tying up as much cash. Having a second approved supplier for critical items can give you somewhere to turn, even if they only receive a small share of your orders. It is also worth looking beyond unit price, because the cheapest supplier is not always the lowest-cost option overall. A lower price may come with larger minimum orders, longer lead times, higher freight or the need to carry more stock.

Agreements can also help reduce risk by setting out notice periods, minimum service levels and clear ownership of any tooling, materials or stock held by the supplier. Staggered orders, agreed delivery schedules and regular contact with key suppliers can also help you spot problems earlier. The right mix depends on how critical the supplier is, how quickly they could be replaced and how much cash the business can afford to commit to protection. Treating supplier risk with the same discipline you would apply to customer credit, as discussed in Should Australian Businesses Still Offer 30-Day Terms, helps keep both sides of the ledger under control.

When Should You Review Supplier Risk?

Supplier risk is worth reviewing at least once a year, and at particular moments in between: when a supplier's share of your spend grows, before you sign an exclusive or long-term agreement, when a supplier changes ownership or loses key staff, and when costs are rising or payments across your industry are slowing. The review does not need to be elaborate. A one-page list of critical suppliers, what depends on each, how long a replacement would take and what the first steps would be is enough to turn an unexamined dependency into a plan.

A useful test is to ask what the business would do in the first week if your most critical supplier stopped delivering next Monday. If the answer comes quickly, the risk is probably understood, and if nobody can answer it, the dependency has not yet been examined.

I have spent more than 30 years in finance and business. If you would like help assessing supplier dependency, and how much working capital it would take to protect your business, contact Pfitz Financial or book a free confidential discussion.