Icelands only growth industry, Debt Recovery

According to a report in the Financial Times by Andrew Ward, when Iceland’s banking sector collapsed in 2008, there was a ready replacement industry to lead the country forward and attract the foreign investors who kept their economy busy during the boom years with the banks.

The industry wasn’t tourism or manufacturing but debt recovery and for the last two years
international law firms and debt recovery specialists are there recovering some of the colossus $80bn plus owed to creditors.

Unlike in the UK and mainland Europe where the Members State’s stepped in and bailed out the banks Iceland decided against the bailout options and let them fail. Let that be a lesson to you Messer’s RBS & Lloyds. And now, two years on the gold rush of debt recovery firms looks set to reach fever pitch as Iceland’s three biggest failed banks: Landsbanki, Kaupthing and Glitnir start the next stage in the winding-up process which sees creditors step up their legal efforts to maximise recoveries.

Although many argue that the UK government should have followed suit and not gambled with taxpayer’s money to prop up the banks, the mantra for not doing so was the phrase, “too big to fail” in that the likes of RBS and Lloyds, are not just commercial banks, but hold savings, investments and current accounts for the public, they are part of the banking infrastructure at home and abroad and they manage pension funds.

Arguably, had they been allowed to fail you could easily add another £1trillion to the amount of value wiped off UK pension funds. As such, in bailing out the banks (although credit lines were not freed) the UK government limited the losses of the banks creditors

As The FT’s Andrew Ward points out, “according to the bond market, creditors are expecting to lose between 70 and 90 per cent of money owed by the three big banks.”

Had this been allowed to happen in the UK you can say for certain that however bad our economic conditions and personal financed may be now, they would be far far worse had the banks been allowed to fold.

The moral of this blog is that whilst the State may have bailed out the banks in the UK, it just shows the fragility of our UK and global economic stability and if banks can fail, sovereign states can fail, then you can (to coin a phrase) bet your bottom dollar that other businesses will fail.

Sadly for UK (non banking) businesses, the State will not intervene and limit the losses of creditors and buy up shares in SME’s. With this in mind, and with commercial insolvencies expected to increase in 2011, ask yourself one question:

If you lost 10-15% of your customers this year anyway through normal attrition, how would you cope if just a quarter of your remaining customers started falling behind with payments? Sadly this is not a speculative question but one that will become reality for tens of thousands of businesses in 2011.

For preventive services such as outsourced credit control to the reactionary services of debt collection and debt recovery services available from CCDR, make sure you have suitable protection to your cash flow and the impact of late payments and bad debt.

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