A recent release of statistics from the Government’s Insolvency Service shows that in the second quarter of 2019 there has been an 11.9% increase of companies becoming insolvent compared to the previous year.
We are all familiar with large businesses becoming insolvent: recently we have seen it happen to long established companies such as Mothercare, Mamas & Papas and Clintons Cards. This is very distressing for the employees and owners of the business, but a greater concern is the survival of other businesses who supplied the failed businesses and the impact on not only the greater economy but in spending confidence.
For each company that goes bust, the employees that are made redundant have their disposable income greatly reduced, which has an immediate impact on local businesses. Likewise, suppliers to the insolvent businesses will suffer an increase in bad debts.
Whilst the large businesses seem very remote from the small businesses with which we are mostly familiar, the impact percolates down through the whole economy.
It is therefore vitally important to be extra vigilant with your customers to ensure you do not extend too much credit. As a supplier you cannot always know to whom your customers sell their products and services.
It is therefore a good time to review your customer base to make sure it is diverse, and a time to pay close attention to credit referencing, and strongly enforcing credit control.
If you do lose a big customer, try and be proactive to gain new business to recover any shortfalls in profits. If no new business is found quickly, it is vital to take measures to reduce costs as soon as possible. Otherwise your business could be the next victim.
We have recently introduced a software which assists with our credit control, so if you are struggling to recover debts owed to you, it could be worth using something similar for your business.
If you need advice about protecting your business or improving credit control measures, we would be happy to assist.
We strongly advise you to seek appropriate advice before taking action on any of the points listed above.
All information contained in this document are correct at the time of writing. Legislation and regulations may change at any time.
If you are in any doubt, please call us for clarification.
About us: Leggate Associates Limited was formed by Andrew Leggate LL.B FCMA FCA CGMA who has over 35 years of tax and accountancy experience in industry and practice, and the practice is managed by Joanne Leggate FMAAT ATT. Our clients range from building subcontractors to multi-million pound concerns and high net worth individuals all over the UK. Please see our website www.leggateassociates.co.uk or follow @LeggateAssoc on Twitter for occasional updates.
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