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How to recession-proof your credit control


With the UK economy predicted to enter another recession – one that the CBI expects to last until the end of this year – what impact would this have on British businesses? And more specifically, what would it mean for credit control departments and late payment?

It is widely expected that the Office for National Statistics will next month confirm that the economy contracted during Q4 2022 for the second successive quarter, which, by definition, would mean the UK is back in recession.

Any ordinary recession brings a number of challenges to businesses, of course, as sales decline amid depressed consumer and business confidence and demand. This typically creates financial and, specifically, cash flow pressure, leading to businesses utilising savings and borrowing more, where possible, in order to cope.

Much like the previous recession in 2020, when the coronavirus pandemic swept the country, this recession wouldn’t be ordinary, yet the consequences would be much the same and, potentially, even more pronounced.

Not only do so many of the present challenges – from high inflation and energy costs to soaring interest rates – place pressure on cash flow, many businesses would enter this recession from a weak position after their finances were decimated by the pandemic and resulting lockdowns.

Although some assistance is being provided by the government to soften the blow, particularly in terms of the energy support scheme, measures are by no means as generous as they were during the pandemic. Then, the raft of government-backed loan schemes provided affordable and accessible cash, and the result of this, when combined with the furlough scheme and various grants, was that the cash balances of businesses across the country were boosted and insolvency levels were suppressed.

Today, however, insolvencies are already rising quickly and further pressure will only see this trend accelerate. For example, Begbies Traynor’s Red Flag Alert report for Q3 2022 found 610,000 companies to be in significant financial distress, while the number of businesses in critical financial distress increased by 25% year-on-year.

Naturally, therefore, businesses will undoubtedly prioritise cash flow in the months ahead as they strive to protect their companies from failure and staff from redundancies. Unfortunately, from experience we know that one of the primary consequences of this – or, rather, ways in which businesses achieve this – is that the late payment of invoices is highly likely to increase.

A growing problem

Of course, the challenge of late payment is not new. The government estimates that small businesses are already owed outstanding payments totalling an astonishing £23.4 billion.

Although instances of late payment actually fell during the height of the pandemic, with boosted cash balances enabling many to pay invoices faster and support their supply chains, it’s on the rise again.

Indeed, according to data from Google Trends, the number of searches for the term “debt collection agency” increased by 30% on a quarterly basis during Q4 2022, and by 59% year-on-year, to a three-year high.

A report by Intrum, meanwhile, found that 46% of UK businesses expect the risk from debtors to rise over the next 12 months, a massive increase from 14% in 2019.

How to protect your business

So what steps should businesses take and prioritise to protect themselves? Here are five things we think should be top of the to do list for businesses and credit control teams:

1. Concentrate on overdue invoices

The first thing to do is review all your overdue invoices and decide what action is required on a case-by-case basis.

Where any invoices are only recently overdue, get in touch with your customers’ accounts payable teams to understand why payment hasn’t been made and request immediate payment. If you can’t reach them after a few attempts, this should increase suspicion that something could be amiss and enable you to take further steps.

Where invoices are long overdue or you’ve already made multiple attempts to recover payment, outsource them to a specialist debt collection agency on a success-basis. Not only is this likely to increase the chances of a successful recovery, owing to the agency’s expertise and the weight they can add to collections efforts, it will also free up your time to focus on newer invoices.

Remember, the longer invoices are overdue the less likely they are to be collected in full. And with insolvencies rising you should do what you can to avoid customers going bust before they pay you.

Get a quote here to see what our success-based fee is to collect any outstanding invoices.

2. Review invoices approaching their due date

The next step is to identify which of your invoices are due soon. Consider contacting these customers to remind them of the approaching deadline and, if you haven’t already, check everything is in order.

It may be worth prioritising any customers which have a track record of paying your invoices late, or perhaps those with an adverse credit risk. Which brings us onto step 3…

3. Make sure you’re credit checking customers

If you’re not already, start credit checking customers before you accept their orders. Not only do credit reports show you where they have a track record of paying businesses late, they’ll also provide a credit limit which you should use to determine how much credit you should offer.

Be sure to credit check ongoing or repeat customers regularly too, as their status could change at any moment given the economic climate. This will enable you to pay closer attention to certain accounts and take appropriate steps to minimise the risk of late payment to your business.

4. Secure credit insurance

Given the growing risk of customer insolvency at present, it’s worth exploring the benefits of credit insurance for your business.

Credit insurance protects businesses from the risk of bad debt by safeguarding cash flow against the threat of debtor insolvency or protracted default.

In the event an invoice becomes aged or a customer enters insolvency proceedings, credit insurance companies ensure that you get paid for any goods or services you have supplied, subject to a designated credit limit.

Click here to read more about credit insurance, its benefits and how it works.

5. Consider your funding options

First and foremost, consider whether the credit terms you’re offering to your customers is creating a cash flow headache for your business. If it is, and you would benefit from being paid a large percentage of the value of invoices soon after raising them, it’s worth exploring invoice finance.

Invoice finance enables businesses to access up to 90% of an invoice’s value within 24 hours of being raised, with the remainder forwarded once the customer pays in line with the credit terms you offer. Although there is a fee to using these services, having a strong cash flow and the ability to pay your own invoices on time can be far more valuable.

Cash can be advanced across your whole ledger or individual invoices, depending on your requirements, and the lender can also provide a dedicated sales ledger management service, removing the resource burden of chasing customers for payment. Facilities can also incorporate bad debt protection.

If this sounds beneficial for your business, discover how much cash you could release by getting an instant invoice finance quote from our sister company, Hilton-Baird Financial Solutions, here.

Secondly, consider your wider funding requirements. Given the pressure that the recession and current economic challenges will put on the finances of businesses of all sizes, it could be worth exploring the finance options available to your business and/or reviewing whether any existing facilities are the most competitive and appropriate for your requirements.

As an independent and award-winning commercial finance broker, Hilton-Baird Financial Solutions can introduce the most suitable funding options and lenders for your requirements and compare any existing facilities against the current market.

Contact their team on 0800 9774833 or request a call back to speak to them, or read more about the benefits of using a commercial finance broker here.

If you’re concerned about any unpaid invoices or the wider impact of late payment on your business, we’d be pleased to assist. As an award-winning commercial debt collection and credit control agency we have a proven track record at helping our clients to get paid faster and regain precious resource. Contact us on 0800 9774848 or request a call back to discuss your requirements.


Just some of our clients

  • Harrisons Business Recovery
  • Wupwoo
  • Construction Recruitment Services
  • Midland Rock
  • Mazars
  • Santander Corporate & Commercial
  • BNP Paribas
  • PNC Business Credit
  • Custom Glass
  • FRP Advisory
  • Quantuma
  • Kreston Reeves
  • NatWest
  • Smith & Williamson
  • SER Contractor
  • Eazipay
  • Barclays
  • Leonard Curtis
  • Wote Street People
  • Close Brothers Invoice Finance
  • Kroll
  • Leumi ABL

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