Bad Debt risk as retail administrations hit two-year high

The number of retail firms in the North West which fell into administration during the first quarter of 2011 has increased by 30% to 60, compared with 46 in the same period last year (2010). The figures, according to accountancy firm Deloitte mean that this is the highest rate of retail administrations for more than two years.

The firm’s North West reorganisation services partner, Bill Dawson, said it was “no surprise” that the retail sector has experienced the most turmoil. Just this week, Crewe-based DIY retailer Focus announced that it had been forced to appoint Manchester based administrators Ernst & Young LLP, putting a potential 4,000 jobs at risk.

“The increase in VAT and the Government’s austerity measures are undoubtedly hitting the sector hard.  In particular, smaller retailers are likely to be feeling the pinch more so than ever, as they often have few grounds to negotiate flexible credit terms with suppliers and may find it difficult to raise funding.

“During the economic downturn, companies experiencing financial difficulty were able to rely on low interest rates and HMRC’s favourable Time to Pay scheme in order to make ends meet.  However, as HMRC needs to recoup lost revenue, we could see a more hardened approach being taken.”

According to figures released from Experian the total number of North West business failures (not just retail) actually showed a 12.5% fall in total insolvencies during February compared with the same period last year, from 1,834 in 2010 to 1,605 this February. That brings the rate of failures down from 0.10% of UK firms to 0.08%.

Across the North West, 194 firms collapsed in February 2011 compared with 245 the previous year, which meant 0.10% of the region’s businesses were hit by failure compared with 0.13% of the total North West business sector a year ago.

The worst figures for business administrations were Wales which recorded the highest regional increase at 23.9%. The region with the least new business administrations was Yorkshire & Humberside with a regional fall in business failures of 22.8%.

Business failure is a risk not just for the business facing it but for customers and suppliers of that company. In the run up to administration there are tell tale signs but sadly many UK small to medium enterprises either don’t know what to look for, or overlook the need for vigilance.

Struggling businesses will have worsening cash flow positions and as a result suppliers may start to notice increased debtor days. The risk facing suppliers is exposure and the effect of debts and bad debts on their own business.

There are steps businesses can take to help reduce the impact of increased debtor days and bad debts on both a proactive and reactive level. By ensuring credit control functions are fit for purpose, or if not, then outsourced credit control can be put in place to make sure that customer credit levels are appropriate to each customer and that the payments owed are being professionally managed so as to improve cash flow.

However, whilst effective credit control will ensure that the invoice payments that can be made by customers are being collected as quickly as possible sadly, outsourced credit control or a robust internal team cannot stop customers going out of business and some will result in a bad debt, even with a vigilant credit management system. This is when debt recovery services are needed to ensure that you have the best possible chance of recovering the debt before it is too late.

For more information on business credit reports and outsourced credit control to make the best of the customers who can pay, or debt recovery and debt collection for those that cant or wont, simply get in touch for more details.

Corporate Credit Debt Recovery (CCDR) is the Liverpool debt specialist serving customers from Liverpool, Manchester, the rest of the UK, and abroad with clients ranging from SME’s to multinational organisations.

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