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Debt Collection

Accountants report bad debt epidemic

By CreditMan Monday, June 1, 2009

Venture Finance Survey reveals scale of problem faced by UK businesses


Research commissioned by premier Invoice and Asset Based Lender (ABL), Venture Finance has revealed the overwhelming scale of bad debt being suffered by UK businesses at the front-line of the recession.

The study polled 1000 UK accountants to get a picture of their clients' experiences, finding that virtually three quarters (72%) have seen an increase in their clients suffering with bad debt in recent months. With 58% of respondents also stating clients have been refused credit from traditional sources such as banks, the figures underline the pressure UK businesses are currently under.

In addition, almost a third of accountants (31%) reported clients are now suffering an average of 14 extra days delay to debt payment, meaning a wait of six weeks for invoices to be paid. Worryingly, over a quarter reported clients even having to wait an average of 30 extra days, putting an enormous strain on cashflow.

The study also outlined the continued ascendance of alternative funding options such as Invoice and Asset Based Lending (ABL), which have risen to the second most popular form of funding amongst clients of accountants surveyed. Services such as Invoice Finance can provide revolving working capital by advancing funds against invoices as soon as they are raised. ABL can then deliver a further cashflow boost by leveraging against a business' assets such as property or machinery.

Two-thirds (65%) of accountants reported increased numbers of clients seeking to protect themselves with services that protect or insure against bad debt, with a further 70% indicating they felt this was an important course of action for businesses in the current conditions. This is up from 53% in 2008.

Managing Director, Venture Finance, Peter Ewen comments: "The proportion of UK businesses suffering from bad debt is alarming. At best, it can only wipe out swathes of hard-earned profit, at worst it can bring a previously strong business to its knees.

Unfortunately, high levels of risk and uncertainty in the market are causing credit insurers to reduce or even remove limits for even the most well run and historically stable firms. Since many businesses only sell to clients covered by credit insurance - if cover is withdrawn it has a huge effect on a business' ability to trade, so turnover suffers.

"Unlike credit insurance, Bad Debt Protection, as part of an Invoice Finance facility, is provided on a much more tailored basis. At Venture, our credit managers do everything possible to maintain client limits, communicating decisions every step of the way. We can often obtain additional, up to date financial information, which is not in the public domain, to try and keep the limit in place. This has proven to be very successful in keeping client businesses trading."