The Insolvency Service has just completed an investigation into a network of fraudulent companies in the UK. The implications of this investigation should act as a cautionary tale for anyone that offers credit to their customers.
In this case, scammers used fake financial accounts to acquire goods on credit with suppliers, using fake details and false documents to elevate credit limits artificially. As the scam progressed, these companies acquired goods they had no intention of paying for and unwary suppliers continued to offer credit, because all of the companies looked profitable on paper.
Small businesses are extremely vulnerable to cash flow problems, and even the slightest slip in payment dates can leave the business unable to pay its suppliers and even staff salaries. In many cases, big suppliers don’t pay their smaller suppliers quickly enough to keep the small businesses running, and as a result the small business finds it simply can’t make ends meet.
News that one of the oldest agricultural firms in Lancashire has entered administration has been met with shock and dismay. Riley Brothers International Haulage Ltd, the most recent iteration of a company with a history stretching back more than a century, entered administration on the 18th of December 2015 with the loss of more than 130 jobs.
When you sign up a new customer or client, it’s tempting to skip the formalities. New customers are always keen and it seems like nothing can go wrong. The last thing you want to do is sour the relationship, or risk losing a client to a competitor. If you ask for a deposit, are you at risk of scaring them away?
In truth, most businesses are used to paying deposits especially if they are dealing with freelancers or micro businesses, and there are plenty of good reasons that you should ask for one.
Although many small and medium-sized businesses know the importance of background credit checks on new customers, a lack of familiarity with the process of actually carrying out a credit check can lead many to overlook this crucial step in their risk management.
Safe Collections have teamed up with credit check specialists Experian to make it easy and affordable for freelancers and fledgling businesses to begin credit checking new customers.
Late payment is a constant problem for businesses in the UK and overseas. Credit terms are ignored and following up can be difficult for some companies, especially if you are a very small or micro business.
This is not how it should be. Every business, irrespective of size, should expect their customers to honour the agreed credit terms and pay in full and on time.
The payment practices of the UK's biggest companies have been under scrutiny for a while now, with voluntary efforts such as the Prompt Payment Code attracting criticism for being 'toothless' in terms of enforcement action.
Meanwhile though, nobody really wants to see a situation where it is mandatory to take late payers to court, or to enforce penalties and interest - after all, sometimes you might simply want to extend the deadline as a gesture of good faith to a valued customer.
Formula 1 tyre supplier Pirelli took a hard line in Hungary by invoking a prompt payment policy that left Lotus with no tyres as the first practice session approached on the Friday.
Payments are due on a quarterly basis and, according to reports in the Telegraph and other national newspapers, Lotus owed about £350,000 for three months' worth of wheels.
A whole raft of new ideas have been announced in the past few months, from a 'conciliation service' for small businesses that are owed money, to forcing big brands to publicise their payment terms, to trade associations going to war (figuratively speaking) on behalf of their members.
It might all feel a little bit like Groundhog Day - again. Publicising payment terms is already a principle of the totally voluntary and largely toothless Prompt Payment Code, we already have mediation, and unless you're actually a member of a very active and involved trade association, that part's likely to leave you feeling cold.
As a debt recovery company tasked with chasing down overdue payments, it makes sense for us to be a signatory of the Prompt Payment Code, the voluntary code of conduct for all businesses when it comes to paying suppliers.
We recently signed up to the PPC and, as part of the process, were asked to provide the names and contact details of 'referees' - satisfied former suppliers who could vouch for us as regular prompt payers - and these were, in turn, contacted by the Chartered Institute of Credit Management, who act as administrators of the PPC.
Two directors of Lancashire-based Worldwide Sports Investments Limited have been disqaulified following an investigation by the Official Receiver’s Public Interest Unit. The directors operated a high pressure sales scam purporting to offer investments in a golf course and hotel development in Portugal.
44 year old director Mr Christopher Smullen received a disqualification order on the 26th May 2015 banning him from managing, promoting or being a director of a limited company for 13 years from the 16th of June 2015.
We always say that in good credit control, prevention is better than cure - collections and recovery action should be for the bad debts you didn't see coming, not the ones you did.
But how do you know who's going to pay on time, and who's not going to pay at all?
If you've worked in credit control for long enough, it will be instinctive, a kind of sixth sense based on the myriad different factors that contribute towards a company's risk profile.
Mr Lawrence McGovern, director of Railtrades Ltd (“Railtrades”) has received a 6 year disqualification order for disposing of the company’s assets worth an estimated £52,000 and paying almost that amount to connected third parties.
Mr McGovern’s disqualification from 15 December 2014 follows a disqualification order made in the County Court at Romford on 14 November 2014 by Deputy District Judge Dudderidge. The application on 28 May 2014 was by the Insolvency Service on behalf of the Secretary of State for Business, Innovation and Skills.
We all know healthy cash flow is the life blood of any small business, but when your cash flow is interrupted, survival depends on having funds in reserve - and the same is true of your customers.
So it helps to know how many small businesses out there have savings set aside 'for a rainy day', and how many would be unable to pay you if their own income was interrupted.
The figures don't make for encouraging reading - according to a report from British personal and commercial banking providers Aldermore, fewer than one in three businesses have a savings account at all.
Of those that do, 21% have less than £5,000 saved, and 7% have nothing at all.