The Insolvency Service, has recently released figures that show that the number of companies that are becoming insolvent is increasing. These figures have led the organisation to say that people who are giving credit to companies should be very wary about this as it is possible companies will go out of business.
Another survey, the Late Payment Survey was answered by over 200 business owners and directors of finance at UK companies. The survey highlighted the many companies struggle with the problem of late payment from their customers and that this can make it difficult for them to do business.
However, despite the increasing rate of insolvency, businesses still said that they weren’t doing credit checks on potential customers before they decided to offer them a line of credit. Less than 50 percent of companies conducted credit checks on new customers, and the figure was even lower for customers who had been customers of the company previously.
This shows that companies are not being very cautious and this lack of caution might leave them with unsettled debts in the longer term.Late payment is something that has many effects down the supply chain and is not immediately contained. Those involved with the study admitted that 60 percent of the time they were late with their payments. The primary reason highlighted for this late payment problem was that the businesses themselves were still waiting for payment from clients.
Of course, this is an ongoing concern and it is not expected to get better in the immediate future as the state of the economy is still quite bad. Unfortunately, in some situations the reason for late payment is even more worrying. Nearly 15 percent of those who responded to the survey said that they often did not receive payment on time because their customers said they simply could not afford to pay.