Bleak Months Ahead…
So it’s official then: the Bank of England has used the R-word – recession is due in the autumn. It won’t be as bad as 2008 but it could last equally long, warns Governor Andrew Bailey.
Safeguarding your company’s cashflow will be crucial. That means acting now to tighten up your debt recovery practices in case your debtors become insolvent.
Rising Numbers Of Insolvencies
Company insolvencies have increased by 40% in England and Wales – and by 70% for the UK as a whole, warn accountants Mazars.
The pandemic has played a part. Some businesses that took out Covid loans are struggling to repay them because the recovery they needed hasn’t happened. And it’s unlikely to be coming anytime soon: prices are rising, belts are tightening. Only the energy giants are relishing the coming winter.
More than 16,000 businesses that took out government-backed Covid loans have now become insolvent without repaying them. Most of those companies went bust for legitimate reasons – but not all of them. Hundreds of directors have been disqualified after applying for loans to which they were not entitled.
It has cost the UK taxpayer £500 million so far. Not surprisingly, questions are being asked. What went wrong? The government checks were “hopelessly inadequate,” according to Sir David Green QC, a former head of the Serious Fraud Office.
Moral of the story: don’t make the same mistake as the government. Review your credit control policies (and debt recovery practices) thoroughly. And get expert advice early – don’t let debts drag on.
What Happens If My Debtor Becomes Insolvent?
If your debtor goes bust without paying you then – at best – you may see just pennies in the pound.
Preferential creditors will get paid first:
- Employees are entitled to wage arrears up to a maximum £800 (and holiday pay).
- HM Revenue & Customs – VAT, PAYE Income Tax, National Insurance (NICs), student loan reimbursements, Construction Industry Scheme deductions.
Next come secured creditors. Last in line are unsecured creditors (including suppliers, contractors, friends and family) and shareholders. Sadly, experience shows that – unless you’re a preferential creditor – you’re unlikely to see much of what you’re owed.
And now that many creditors’ meetings have now been superseded by a paper/email-based process, you don’t even get the chance to shout angrily at your debtors – futile though that was.
Prevention Is Better Than Cure
Don’t wait too long before chasing debtors. If your payment terms are 30 days, then chase them on day 30 – not day 40. Yes, customer relationships must be preserved and that will determine how robustly you chase them.
But they’re only truly a customer if:
- they’re still solvent
- they pay you.
It’s also a good time to review the credit terms in your contracts to ensure that your payment terms are still suitable. It may be worth switching from 30-day payment to seven days instead. The faster you get paid, the more likely you are to see the money.
Companies should always review their contracts regularly. It’s good practice – and directors always say they do. But in our experience, they don’t always get the opportunity because more immediate priorities tend to grab their attention.
If you don’t have the time to review your contracts then a commercial solicitor can do it for you. It’s time well spent if it can close loopholes that would prevent you from getting paid promptly. You can’t beat peace of mind.
Get Expert Legal Advice On Debt Recovery
Struggling to recover outstanding debts? Debtors fobbing you off? Contact Coles Miller Debt Recovery Manager Eric Holt for expert help to get paid quickly.
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