Late payment was a primary or major cause of 23% of insolvencies in the last 12 months according to members of R3, the Association of Business Recovery Professionals, in a recent survey. This is an increase from 20% in the 2014 survey. Similarly, the ‘domino effect’ – the insolvency of one company being caused by the insolvency of another – was stated as a primary or major factor of 20% of insolvencies in the 2016 survey compared to 16% in 2014. Despite promised government intervention, new analysis from Direct Line for Business found that a total of £5.8bn had been written off by UK SMEs in the last financial year with 1 in 10 companies writing off debts in excess of £100,000. Construction is still seen as the sector with the worst track record for paying bills on time.
Andrew Tate, R3 President, said “A business can have a great product and great staff, but if it doesn’t get paid for what it sells, or if it is over-reliant on one supplier or customer, things can go wrong very quickly”.
Mr Tate’s statement highlights the need for all businesses to be prudent when extending credit to business customers and with the issue of late payment seemingly worsening, this advice is more relevant than ever. Credit Insurance not only replaces valuable working capital in the unexpected event of bad debt, but also gives access to financial information that will aid in the decision of who to extend credit to allowing the business to grow securely.