Late payment now greater threat than insolvent customers

UK businesses should tighten their credit management procedures to address the risk posed by late-paying customers as it reveals that late payment has overtaken insolvency as the major reason for UK claims notifications in the first nine months of 2013, according to Coface UK.

To the end of September 2013 Coface received claims notifications from almost 590 of its UK credit insurance clients. Of these, 60 percent were made because of a customer’s protracted default and 40 percent because of customer insolvency. During the same period in 2012, only 33 percent of claims notifications received were the result of protracted default and 67 percent received were due to insolvency. The average protracted default claim notification received by Coface in the UK in quarter 3 2013 was just under £25,000.

Andrew Share, Director of Information, Claims and Collections at Coface UK, says our findings reflect the national trend: “In that the number of company insolvencies in England and Wales, which although rising by 10.5 percent in Q2, continues to decline since its peak in 2009 and in Q3 was 2.0 percent lower than quarter 3 in 2012.

“However, the level is still much higher than at the start of the financial crisis in 2008 and the current situation for companies remains fragile.”

Low interest rates and favourable credit conditions mean that businesses are able to survive, although many are just treading water unable to grow or invest. In this context it’s not actually surprising that the percentage of claim notifications made to Coface UK due to late payment has almost doubled; some companies are trying to hold on to their cash for as long as possible even though this can have damaging consequences for their suppliers. Few companies can withstand this kind of blow to their cash flow if they don’t have any credit insurance protection in place.