Wednesday, April 8th, 2009
The number of businesses taking legal action to recover debts from customers and clients rose by nearly a quarter in 2008.
There were 73,000 County Court Judgments against companies in the UK last year – a rise of 23% over the previous year. The total value of the judgments rose by 26% to £408m compared with £324m in 2007.
The research was carried out the Credit Management Research Centre (CMRC) at Leeds University and shows that companies are less willing to see debts mount up before they take action to protect their business.
The need for such action is all the more urgent as the CMRC is now predicting that about 40,000 companies will be declared insolvent this year – that’s 35% more than last year.
Professor Nick Wilson, who heads the CMRC, said: “Of course the fall in interest rates and the reduction in the value of sterling have alleviated the pressure on some companies but these potential benefits are offset by falling operating profits in a highly leveraged corporate sector.
“In 2007 we correctly predicted a 20% increase in insolvencies for 2008. It appeared then that insolvencies would peak in December 2009 and then start to fall. Our revised forecast shows a persistently high failure rate into 2010.”
Further CMRC research shows that about one in four insolvencies are caused late payments. With struggling companies taking longer and longer to pay their bills it is hardly surprising that more and more creditors are taking legal action.
No one wants to be dragged under by late payments so it is important to respond as soon as problems arise. Early action also reduces the risk of losing out if a customer who owes you money becomes insolvent before they pay you. If this happens, you may receive little or none of the money owed and find you are facing insolvency yourself.
The other danger of holding back is that your invoices may go to the back of the queue while the struggling firm settles with other creditors who are quicker in taking action. This should not happen but it does and is perhaps inevitable. Faced with not having enough money to pay everyone, many firms will often pay whoever is putting them most under pressure.
It can be a case where politely holding back and giving people time can backfire and put your business at risk.
It looks as though the situation is going to get worse before it gets better so when faced with late payments it is vital to get legal advice as soon as possible so the necessary action can be taken in good time.
For more information or advice contact Steven Kinch now.
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