There have been plenty of stories in recent times of large corporations going bust, leaving a trail of out-of-pocket suppliers and creditors in their wake.
But it would be wrong to assume this is the kind of thing that only happens in the world of big business. Even down at the ‘grassroots’ level of microbusinesses and one-man-bands operating in niche cottage industries, where the principles of trust and your word being your bond are still believed to hold sway, things can go wrong.
The collapse of construction giant Carillion could spell havoc for the UK’s small business economy, the country’s SME trade body has warned.
The massive building services conglomerate has been forced into liquidation with debts in excess of £2bn, putting 20,000 jobs at risk. As a major government contractor, there are immediate concerns over infrastructure and maintenance projects covering schools, hospitals and transport.
New figures have revealed that UK construction contractors have been hit by £700 million in cash retention losses caused by insolvencies in the past three years.
The figures, which come from a report commissioned by the Department of Business, Energy & Industrial Strategy (BEIS), have rightly been described as ‘shocking’ by the trade body the SEC Group.
The SEC claims that the brunt of those losses have been borne by small sub-contractors who, sitting further down the feeding chain, are less likely to recover monies owed to them if a client or main contractor goes bust.
Along with traffic wardens, politicians, journalists and merchant bankers, debt collection is one of those professions that has a perennial problem with its public image.
But while the unfortunate association between debt collection and burly, menacing men using dubious means to take money from the poor and unfortunate may still persist, as with many things in life, there is significant gap between perception and reality.
The Scottish government has been forced into an embarrassing admission after it was revealed that it fails to pay a fifth of invoices on time. After the late payments figures were made public by the Scottish Labour party, the ruling SNP’s Finance Secretary Derek MacKay had to confirm they were correct during a Parliamentary session at Holyrood.
A brother and sister from Greater Manchester have been convicted of fraud after using a network of sham companies to defraud businesses out of hundreds of thousands of pounds. Mohammed Ali and Samira Saddique set up a string of fake businesses, specialising mainly in so-called debt collection, but in reality the companies were nothing more than a vehicle for advance fee fraud on an industrial scale.
Four scammers from East Lancashire have been jailed for fraud and money laundering offences after using a string of fake debt collection companies to fraudulently obtain thousands of pounds from SME’s to pay fictitious debts.
Thomas Moffett, Elliot Reed, Nancy Shaw and Gary Oliphant were imprisoned at Preston Crown Court on July the 5th 2016.
The group was part of a total of 18 people sentenced for their role in the scam, for offences including conspiring to commit fraud by false representation and money laundering.
The phrase 'no win, no fee' is screamed at you from a hundred adverts a day, usually in relation to personal injury claims, PPI mis-selling and so on, but it is also used in the context of no win, no fee debt collection - meaning you only pay commission to the b2b debt collection company if they are successful in recovering what you are owed.
It's worded all sorts of different ways, so you might also see 'no collection = no commission' on some ads, but it boils down to the same thing - if you don't win back your money from the debtor, then you have nothing to pay.
Dealing with an Insolvent client can kill a profitable business. If your client becomes insolvent it will have a significant knock-on effect, that will impact on your company cashflow, leaving you as a creditor with unpaid invoices that will likely never be paid.
In 2015, more than 100,000 UK businesses found themselves as creditors to an insolvent business, and many will have found their cash flow at serious risk as a result. Any business, irrespective of size, is at risk if their client becomes insolvent but for freelancers and micro-businesses these risks are magnified.
It doesn't seem like rocket science to suggest that if a customer goes bust, you might want to stop supplying them; in fact, if you're doing your credit control properly, you'll probably want to restrict their account long before they publicly declare insolvency.
Under new government plans, due to come into force this October, you might find you are banned from taking such action, once your customer's financial woes are made public knowledge.
When it comes to avoiding bad debt the old adage "prevention is better than cure" is a very useful rule to follow. As we tell any business owner that will listen, it is absolutely imperative that before you extend a customer credit you answer the following questions:
The UK's small businesses are facing even longer overdue invoices than at the worst point of the recession, according to figures from ABFA.
In a report published earlier this month, the Asset Based Finance Association revealed that, in 2009 when the recession peaked, firms with turnover of less than £1 million per year were waiting on average 61 days for invoices to be paid.
Hardly a month goes by without a new government or industry scheme aimed at preventing late payment - since the EU Late Payment Directive was introduced, we've seen the voluntary Prompt Payment Code, proposals to name and shame poor performers on a public database, the Supply Chain Finance Scheme to raise funds against outstanding invoices, and several suggestions of new conciliation schemes.
The smallest firms in the UK are being paid late, in some cases by over a year, due to a lack of urgency and a sense of awkwardness about chasing clients for payment, new figures suggest.
A survey carried out by online accounts software provider FreeAgent revealed that just one in seven micro-businesses that issue invoices have never had to deal with an instance of late payment.