Insolvencies rise - businesses urged to get tough on late payers

Businesses are being urged to take a tough line on late payment, after fresh figures revealed the rising number of insolvencies.

Law firm Mace & Jones pointed to research by accountancy firm Deloitte which found that the number of businesses going into administration in the North West has increased dramatically in the first quarter of 2008. According to the Deloitte figures, 147 businesses in the region went into administration in the first quarter of 2008, compared to 102 in the same period of 2007 – a sharp rise of 44.1%. Nationally the number of firms going into administration rose to 858 in the first three months of 2008 from 557 in the final quarter of 2007.

Mace & Jones partner Duncan McAllister said small businesses need to ensure their credit control procedures are robust to weather the credit crunch crisis.

"Late payment already contributes to the failure of thousands of firms each year," he said. "Late payment should not be tolerated and can be tackled with an effective credit control system. Too many businesses are paying late to sustain their own cash flow and undermining their suppliers in the process. We advise businesses large and small to 'get tough' on this practice. That means thorough management including credit checks on new customers and even existing customers, offering incentives such as discounts for prompt payment and making customers aware of their obligation to pay with prompt invoices.

Mr. McAllister said the payment climate is worsening as the availability of credit shrinks and loan costs rise.

"Chasing cheques can be enormously frustrating and time consuming," he said. "For these reasons businesses should consider outsourcing collections to a legal firm. The authority of a solicitor's letter can snap bad debtors out of their inertia and make them pay quickly. Moreover using a lawyer saves business owners' time and money and allows them and their staff to get on with the job of managing and growing the business. "

New research commissioned by the Banker’s Automated Clearing Services (Bacs) this year showed a massive £18.6 billion is owed in outstanding payments to Britain’s small-to-medium sized enterprises – a leap of £2.6 billion in the last year.

Bacs’ annual business omnibus found that the average amount owed to an SME at any one time is £30,000 - an alarming figure considering almost a third (29%) of those surveyed claimed they could go bust if faced with overdue invoices of up to just £20,000.

The research also showed that almost a fifth of SMEs (19%) now employ a dedicated person to chase in late payments – losing an average of 17 working days a year to this task.