New research by R3, the leading professional association for insolvency professionals, has revealed that at least one in five UK corporate insolvencies in the past year have been caused by late payment or the insolvency of another company.
A survey of the insolvency profession reveals that late payment for goods and services was a primary cause of 23% of insolvencies in the last twelve months, while the failure of a supplier or customer was a major factor in 20% of cases.
A business can have a strong product or good staff, but over-reliance on a supplier or customer, or if it doesn’t get paid for the service or product can have serious repercussions for a business.
Initially, the late payment or the failure of another company might look to be a factor which a company is not able to control, but R3 advises that there are a number of precautionary measures which can be taken to minimise the risk of issues with the supply chain or customer base. It encourages businesses to proactively check who they are trading with and keeping track of invoices and missed payments.
R3 continues by explaining that;’ the serious implications of late payment is recognised… but government promises and other initiatives do not appear to have yet made any real impact on the scale of this problem.’
Previous research conducted by R3 found that 6% of UK businesses, equivalent to 113,000 companies, were creditors in an insolvency last year.
The failure of one company can have serious repercussions for other companies involved. The loss of a major contract or supplier can quickly interrupt a business’ cash-flow. It is possible to take precautions to minimise the risk other insolvencies pose to your business. Businesses are advised to make sure terms and conditions include an effective ‘Retention of Title’ clause – checked by a lawyer – to ensure the retrieval of goods from an insolvent customer if they have not been paid for.
Both late payment and the ‘domino effect’ have been identified as leading causes of insolvency by the profession so more needs to be done to prevent needless financial concerns for businesses.
In this time of uncertainty following the EU referendum, it is important that precautions are taken to mitigate problems for the business community, making it easier for UK companies to carry on.