- 30 Jul
The Risk Of Customer Bad Debts Is Rising
The risk of customer bad debts is rising as there has been an increase in both corporate and personal insolvencies. It is time to protect your business against the risk from customers taking trade credit. Protection against taking customer bad debts is still on offer at present.
Personal Insolvencies Increase
An article in The Times dated 28th July 2018 reported that personal insolvencies in England and Wales have hit a 6 year high. The rise was attributed to rising inflation set against low wage rises and growing levels of debt.
In the last 3 months there has been a 27% jump in the number of people becoming insolvent, when compared to the same period last year. A worrying, and significant trend. The Office for National Statistics (ONS) reported that, for the first time in 30 years, families are spending, on average, £900 more than they are earning each year.
Coupled with this increase in personal insolvency is an increase in similar corporate problems.
Company Insolvency Is Rising
The Insolvency Service statistics for Q1 2018 showed that corporate insolvency rates (excluding an adjustment for "bulk insolvencies" caused by a change in claimable expenses rules - I am not sure if that should be adjusted though as it reflects the reality of what is happening in the UK), have increased in Q1 2018 to their highest level since Q1 2014. Of 4,462 companies that entered insolvency arrangements in Q1 2018, 72% were CVLs (Creditors Voluntary Liquidations), 17.5% were Compulsory Liquidations and 11.5% were other types.
If you are a company that is facing the prospect of going into liquidation, speak to us first to see if there is anything that we can do to help you avoid insolvency.
Bad Debt Protection Is On Offer
In such a climate, many businesses are seeking to mitigate the risk of customer bad debts through insolvency by taking out credit insurance or bad debt protection (BDP). BDP operates in a similar way to credit insurance but is offered to users of invoice financing services as an optional add on. The financier either takes out their own blanket credit insurance policy, or takes the risk directly themselves passing on the risk mitigation benefits to their customers.
There is still bad debt protection on offer at present, and it can be a very effective way of protecting your company against the risk of customers failing. Even if your existing invoice finance company isn't able to offer the service, there are others that will. It works as follows:
- Your customers are granted credit limits - the maximum level of sales invoicing that will be "covered".
- If the customer enters insolvency, the value of all covered invoices will be paid to you by the provider, after a pre-agreed credit period (if a prepayment has been made that is not repayable in such situations i.e. there will be no recourse. Hence the term "non recourse" is applied to these services).
- Note that there can be first loss clauses (similar to a first loss on your car insurance) and not all funders can offer 100% bad debt protection. In some cases it is a lower figure e.g. 90% of invoice values.
This kind of risk mitigation against the risk of customers taking trade credit is still available at present, however, that does not mean that it will continue to be offered if the situation continues to deteriorate. Now is the time to protect your company against the risks of offering trade credit to customers.
- 06 Dec
Hospitality And Construction Sectors Top The Insolvency Index
Looking at some figures in Business Money, published from the Creditsafe Insolvency Index, it appears that the hospitality sector (hospitality, hotels, restaurants and bars) tops the insolvency index, followed by the construction sector and then manufacturing. Worrying if you supply those trades with goods or services.Figures from the Office For National Statistics suggest that generally, the...
- 24 Apr
Factoring For Road Transport Company Cash Flow Problems As Bad Debts Increase
Coincidently, just after posting my article about transportation factoring companies, I saw an article published online by the Motor Transport publication, suggesting that bad debts have risen significantly within the road transport sector.The article sites figures regarding the road transport sector, released by Credit Safe. This statistics show that in the first quarter of 2018, while sales...
- 23 Apr
Retailageddon - Why Are So Many High Profile Companies In Financial Trouble?
Can anyone explain why so many high profile companies are having financial problems? Is there cause to worry about economic stability?I first started really paying attention to the spate of emerging problems when Carillion collapsed, the second largest UK construction firm. Watching some of the social media commentators that have an interest in the credit insurance sector. Since then there seem...
- 26 Mar
Protection For Suppliers To UK Retail Chains
If you are a supplier to any of the large retail chains, you may wish to review your requirement for bad protection following a number of recent news reports from the retail sector.More problems have emerged from the sector as the BBC report that Prezzo, the Italian restaurant chain plan to close approximately a third of their retail outlets, as part of a creditors voluntary arrangement...
- 28 Feb
Maplin Electronics & Toys R Us Enter Administration
Two more large company failures on the BBC news this morning - both Maplin Electronics and Toys R Us have entered Administration.Administration is an insolvency process whereby a firm of insolvency practitioners, the Administrators, take over the running of an insolvent business (one that cannot pay its creditors as they fall due), in order to maximise the returns for creditors of the business....
- 30 Jan
Pulse On Protecting Against Carillion Bad Debts
I had an email from Pulse Cashflow Finance, one of our funding panel, that I thought raised a great point about the recent failure of Carillion. Their clients will not be suffering any bad debts.They have included "bad debt protection" for all of their clients, including those operating within the construction sector, meaning that their clients are protected from taking a bad debt.OK, so it was...