The late payment crisis
24 January 2022
Writing in the Belfast Telegraph, Margaret Canning based a piece around a survey from Barclays, which had found that small to medium-sized businesses were experiencing late payment rates of between 60% and 94%. I was not surprised by this, having spent the best part of the past two years in the midst of this at the coal face of the late payment crisis. I have previously written pieces on the importance of business debtors and creditors “playing fair” with one another amidst this pandemic, but two years in and another story is emerging.
I have found that for the most part, debtors and creditors in business have been able to come to mutually agreeable arrangements to repay, schedule or in part forgive debt. Commercial Landlords and tenants have been creative in working through the COVID closures. Suppliers and customers with longstanding and mutually beneficial trading histories have moved mountains to make sure that they treat one another fairly in highly constrained times. Whilst this may be true, it appears that we have reached a crunch point in the past few months. Record inflation numbers published this week, driven by spiralling costs of raw material supplies and energy costs and coupled with pressure at the slowest months of the year for many businesses have meant that customers who have to this point struggled through paying have reached a breaking point.
Since returning to the office from my Christmas break, I have noticed a significant uptick in clients approaching me with debt recovery instructions. I have also had an increased number of instructions from clients needing advice on pressing creditors and on keeping the wolves from the door and making it through the next number of months without taking any formal insolvency steps. Instructions that I am receiving align with what Margaret Canning has reported but go further. They illustrate that debtors are indeed late paying, but I am seeing the reasons why. For the most part, it is not that the debtors do not want to pay. Often they are simply being cautious and trying to make the most of the “credit rope” that their suppliers are willing to extend as they simply do not know what is around the corner. COVID, coupled with Brexit, has brought massive uncertainty to Northern Ireland, as we all know.
On other occasions, the increased costs of power, raw materials, supplies, and manpower have put contract prices under threat. Previously profitable contracts no longer provide sufficient income to cover costs. There is a lot of plate spinning and robbing Peter to pay Paul going on. I have no doubt.
In the midst of this, there are options for the pro-active business. Doing nothing is not an option on either side of the business equation. Allowing debtor days to grow will kill cash flow and your business. Ignoring creditors and debt and potentially, more importantly, your Director Duties in the process may have longer-term issues for people involved in the business. At Carson McDowell, we have spent the past two years assisting clients in steering the best course possible through this crisis and given the results from the Barclays survey, it is clear that the end is not yet in sight.