New figures show that during 2015 around 113,000 UK businesses were owed money by customers or suppliers who entered formal insolvency, which is around 6% of businesses.
The hard truth is that if a supplier is not paid upon delivery but it pays its own supplies up-front then it is in effect lending money to its customers, usually without any form of security. If that customer enters formal insolvency then it is likely that the unfortunate supplier will not see any of its money back, or possibly a small proportion of what it is owed.
This issue is particularly affecting new and growing businesses which can find it difficult to get credit from its suppliers. Statistics from R3 (the trade body for insolvency professionals) show that in 2015 around 14 per cent of medium-sized businesses (51-250 employees) were likely to have been exposed to another firm or individual’s insolvency. This is in comparison with only 4 per cent of larger businesses (250+ employees) and 5-7 per cent of smaller businesses (1-50 employees). Furthermore, R3’s research revealed that 4 per cent of micro businesses (2-5 employees) were a creditor in over five insolvencies last year (23,000 businesses), the highest proportion of any business size in this position.
Phillip Sykes president of R3 explained that “growing businesses encounter two classic problems: going for growth by taking on new customers without properly checking their creditworthiness; and a lack of controls to monitor their exposure. This leaves growing businesses, particularly medium-sized ones, as the most at risk of being exposed to others’ insolvencies.”
What should businesses do?
Prevention is always better than cure. Businesses should properly assess the risks before trading with individuals or firms by checking their creditworthiness and limiting any form of credit accordingly. If credit is granted then a business would need tight debt collection controls.
If you have already given a customer credit and they do not pay within the agreed terms, Francis Clark Debtor Book Services can help.
Negotiation with a debtor is often a better course of action than instigating costly legal or insolvency proceedings. Prior to any formal insolvency proceedings we can approach the debtor, establish their position and assist you in deciding the best way ahead.
If you have already received correspondence from an Insolvency Practitioner in relation to your customer, we offer a free review service. Even if your debtor has already entered into a formal insolvency process, there are steps a creditor can take to maximize the chances of a return to them.
We will review the correspondence from the Insolvency Practitioner, confirm the status of the company, review the filing history and comment as necessary. If there is a creditors meeting we will usually be able to attend on your behalf (or with you if you prefer) and we can put questions to the directors and if necessary seek to change the director’s choice of Insolvency Practitioner.
Please call one of our Licensed Insolvency Practitioners today for a free, no obligation chat:
Stephen Hobson 07979 507954
Lucinda Coleman 07730 096776
Steve Henson 07792 588303
Nick Harris 01392 667000