Bad Debt fears widen as Retail failures continue to increase

Further to last week’s blog on the risk to bad debt levels as retail administrations hit a two year high, further scrutiny of the latest statistics from the Insolvency Service and analysis from KPMG have also shown a substantial rise in the number of retail administrations, but also in a rise in retail company voluntary arrangements (CVAs) for the first quarter of 2011.

Whilst administration are indicative of current sector wide trading circumstances, or lack thereof, CVA’s are indicative of future difficulties, so it is unwelcome news to learn that not only are the current business failures in the retail sector soaring, but the future levels don’t seem to be stabilising any time soon.

The news is a blow to not just retailers but SME’s who supply to the sector and whom are already being squeezed with high levels of late payments problems, poor cash flow and increased risk of their own insolvency as a result.

Brian Green, restructuring partner at KPMG, commented on figures that CVAs in retail have risen by 30% in Q4 2010 to Q1 2011 y saying “There is definitely a sense that the extended period of treading water, enabled by low interest rates, is coming to an end. The pain is not just being felt on the high street; the overall number of administrations went up by 22% in the first quarter of the year, compared with the last quarter of 2011”

In other news from the retail sector, high street brand Mothercare announced the closing of 110 of its stores today, which accounts from some 30% of its total store base, with the focus of operations shifting to out-of-town Parenting Centres and online sales, after seeing underlying UK profits slump by 70% in the last year.

Mothercare is not the only retailer feeling the squeeze as the sharp rise in sector administrations show.

In other retail news this year, HMV suppliers were denied new credit insurance in Q1 of 2011 amid widening speculation of the retailer going into administration. Fears that were heightened when in April the group admitted they were considering a company voluntary arrangement but now seem to have subsided on the advanced stage of the Waterstones sell off.

With continued pressure from online sales, dwindling consumer confidence and the never ending cost of living increases it is difficult to see many winners emerge from the retail sector over the next 12 months.

British Retail Consortium (BRC) spokesman recently said: “On the whole, people are reluctant to spend where they don’t have to, it is clearly going to be the case for some time but for how long is difficult to say.”

One certainty in a growing climate of retail administrations is that suppliers and other creditors to retail firms will see increased debtors days and increased levels of late payments, coupled with the prospect of increased debt recovery activity and bad debt provisions or write off’s.

As with any sector wide shift (in this case downwards) the ripples starting with the retailers then become waves as the knock-on effect takes hold, the further they travel. Low store sales hits not just the supplier of the goods being sold, but the logistics firms ferrying those goods, the manufacturers and the raw material suppliers to the manufacturer’s but also the advertisers and marketers of the stores through to the credit card companies taking a hit if the retailer goes out of business, leaving faulty goods or non supply issues in its wake.

Companies going into administration or announcing a company voluntary arrangement should serve as an urgent alarm call to act and protect your own business from the after effects.

If you are worried about your customers going out of business and incurring bad debt/s as a result, get in touch with CCDR (Corporate Credit Debt Recovery Ltd) and we can develop a suitable plan for you to manage everything from outsourced credit control through to debt collection and debt recovery or assisting you with debt mediation or dispute resolution.

The important elements in effective debt recovery are time and planning.

CCDR are a professional debt recovery agency and our results speak for themselves, get in touch for a no obligation discussion on how we can help and be safe in the knowledge that we operate our services on a ‘no collection, no fee basis’

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