Late payment of invoices is now - for the first time in recent years - the single greatest risk to creditors, even outranking debtor insolvency in a report from credit risk insurer Coface UK.
According to the insurer, 60% of the claims it received in the first nine months of 2013 arose due to "a customer's protracted default" - that is, either late or non-payment.
This compares with just 40% of claims made because of the insolvency of a debtor who left unpaid bills.
It's a substantial turnaround from the same period of the previous year, when two thirds of all claims were due to insolvency and just one in three were due to late payments.
And it's a sizeable risk for those businesses affected; in the third quarter, the average claim received by Coface UK for protracted default debts was almost £25,000.
A fragile situation
While the turnaround is in part due to a decrease in the number of companies declaring insolvency, it is clear that both it and non-payment of bills remain significant worries for suppliers when extending lines of credit.
Andrew Share, director of information, claims and collections at Coface UK, said:
"Our findings reflect the national trend, in that the number of company insolvencies in England and Wales ... continues to decline since its peak in 2009 and, in quarter three, was 2% lower than Q3 in 2012."
Content continues below
Wholesaler Palmer & Harvey has entered administration after failing to restructure significant debts owed to suppliers. The Palmer & Harvey Group, the UK’s fifth-largest privately owned business and…
The rhetoric surrounding the UK’s late payments culture was ramped up another notch this week as an influential Parliamentary committee recommended a mandatory 30-day payment term to stamp out the…
Recently we featured an article on an individual called Phillip Buffett and his "Uber Intelligence" group of companies. This individual came to our attention when we were tasked by two freelancers to…
The Centre for Retail Research has published its latest Who's Gone Bust? report, giving an insight into how retail companies have been affected by five years of economic turbulence. Worryingly for…
However, he pointed out that there have been short-term reversals of this trend, with a 10.5% rise in company insolvencies in the second quarter of 2013.
Mr Share continued:
"The level is still much higher than at the start of the financial crisis in 2008 and the current situation for companies remains fragile."
Coface UK has adopted a prompt payment commitment of its own in light of the current market conditions, pledging to pay all approved claims within 30 days, and sums of up to £5,000 in an average of five days.
While prompt payouts on credit risk insurance are welcome for those companies affected by non-payment or insolvency, Mr Share recommends a proactive, rather than reactive approach.
"It is important that businesses have an effective credit management strategy in place to monitor their customers' payment behaviour and limit their exposure to late-paying customers."
This echoes our own regular advice, and a joined-up credit management strategy is the best way to minimise exposure as far as is reasonably possible, while taking action on any invoices that go unpaid by their deadline.
That means sourcing business credit reports on new clients to determine how trustworthy they are on payments, and how much credit it might be wise to extend to them - if at all.
Clear invoicing and payment procedures help to make sure bills do not go astray, reducing the potential for disputes when the deadline arrives.
And if a payment is not received on time, the appropriate actions might range from gentle reminders to stopping all work, or even commencing debt recovery or court action, to get back what you are owed without it being lost to the insolvency process.
Over 150 Years Of Industry Experience
Our modest but highly skilled team has a combined total of over 150 years of experience in commercial credit management and B2B debt collection. From independent IT contractors to major film and TV publishers, Safe Collections has the knowledge and experience you need to get paid quickly and cost effectively.
Image "Insolvency" by Flickr user Simon Cunningham is licensed under CC BY 2.0