Average debt being chased for payment rises by 40%
Credit managers let out the reins and relaxed their commercial debt management strategies in Q1 2010, in a sign that business confidence is returning, according to Lovetts Plc, the leading debt recovery law firm.
In Q1 2010, the average commercial debt being chased for payment rose by almost 40%* compared to Q4 2009 suggesting that businesses are prioritising bigger and more significant debts. In addition, the length of time it is taking for companies to chase payments has increased. Late payers are getting an extra 5 days to pay, compared to the previous Quarter, before an LBA is issued and an extra 7 days after the LBA has been issued, before a claim is made.
However, Lovetts is warning that this renewed confidence could be short-lived if businesses fail to apply stringent debt management controls across the whole of their business.
Charles Wilson, Chairman and Managing Director of Lovetts says, “As the old adage goes, ‘look after the pennies and the pounds will take care of themselves.’ When it comes to debt recovery, the message is not far off this. It is of course vital for companies to chase up the large outstanding payments, but by ignoring the smaller ones, there is a danger that these sums will soon accumulate, putting cash-flow at risk.
“The cost of issuing a Letter Before Action (LBA) to chase up payments is extremely low in comparison to the amount of outstanding debt many businesses are facing. It therefore makes enormous financial sense to chase up all overdue debts to improve cash-flow.”
“Added to this, year on year, businesses are now waiting over 25 days longer before issuing an LBA. This delay could be costly, and puts companies at greater risk in what is still an incredibly uncertain economic environment. It’s simple: the quicker businesses chase up payment after the 30, 60 or 90 days of the payment terms has elapsed, the quicker they will see the money.
“Businesses need to remember that the tough times are far from over, despite the UK officially being out of recession. The next 12-18 months are pivotal for UK businesses and simply pursuing debts in a more effective and timely manner could spell the difference between success and failure.” Charles concludes.