Almost every business in the UK, regardless of size, has suffered from bad debts at some point, and the trend for late payments is getting worse. Don’t believe us? Here are some slightly scary figures to start your day off:
- Debt owed to suppliers across key UK business sectors has risen by 95.4%, up to £962 million between July and September this year.
- This huge rise comes in spite of the fact that those same businesses experienced a 1.1% increase in sales.
- Those businesses also gave a 1.3% pay rise to employees.
- Growth in new companies increased by 0.9%
These findings were released in the Creditsafe Watchdog Report, which tracks economic developments across 12 core UK business sectors – Farming and Agriculture, Construction, Banking and Financial, Hospitality, IT, Manufacturing, Professional Services, Retail, Sports and Entertainment, Utilities, Transport and Wholesale. There were also some interesting ideas about what would be behind this, including the ‘domino effect’ of bad debt. But what does this mean, and how will it affect business owners?
Debt By Industry
One of the great things that this report did was collate the total debt owed to (or written off by) businesses in each of those 12 sectors. These numbers are quite significant, as it gives us a pretty clear view of which industries are plagued by chronic late payments – and helps us avoid them where we can! Interestingly, these figures reflect the sentiments in our last blog post, that many of the issues with late payments are found in the private sector. For example, in the last 3 months bad debts totalled:
- £167,988,611 in the banking and financial industry
- £35,695,850 in professional services
- £9,136,325 in construction
- £156,693 in farming
- £1,284,178 in hospitality
- £3,850,121 in IT
- £10,722,222 in manufacturing
- £1,385,864 in retail
- £602,464 in sports and entertainment
- £2,678,806 in transport
- £1,821,815 in utilities
- £11,374,999 in wholesale
That’s a total of £246,697,948 bad debt accrued in just 3 months.
The Bad Debt Ripples
Most people have heard about the ripple effect – the idea that a single, small action or event can spread to have huge, unintentional consequences. That is exactly what we are seeing here in the credit world. If just a few businesses don’t pay their suppliers on time, those suppliers are unable to pay their own debts, and so the ripples flow out. Creditsafe also believes that this particular incident of increased bad debt has also been caused by ‘a handful of companies dissolving or going into liquidation and leaving behind a trail of debt.’ They go on to explain that, while it might seem a little unbelievable that only a few companies could cause this much of a debt build up, it is absolutely true. For example, in the manufacturing sector alone, Whitworths Group dissolved and left behind over £45 million of bad debt this quarter. In retail, Pearl Acquisitions failed with over £83 million of bad debt, and their sister company Pearl Finance Co left over £80 million of debt behind in the banking sector.
What That Means For You
But what does this mean for you, the business in the middle? It probably means you are being caught between customers who can’t pay you, and suppliers who you are struggling to pay. The result of this, according to Creditsafe, is that the business world is starting to turn more and more to credit in order to fight the financial crunch a bit longer. And while that may work in theory, it has never been more important to ensure that all of your customers are paying on time. So if you are finding a slew of overdue invoices every month, it’s time to take action. Review your late payment policies, make sure you are enforcing them, and if needed, bring in some external help.
At Debtcol, we specialise in helping businesses retrieve what is rightfully owed to them. We have spent years dealing with debtors and serial late payers, meaning we have the experience and legal know how to ensure you get paid what you are owed, and get paid on time in future. We can handle one off debt collection or multiple debt collections, and we can even provide ongoing outsourced credit services and business investigation, so you ca be confident that you are only dealing with businesses who will actually pay you for your services. For more information, please just get in touch with us today.