As insolvencies rise, could you spot the warning signs in your customers?

8th October 2019.

James Salmon, Operations Director.


Global insolvencies are rising for the first time in the decade since the 2008 financial crash – with the greatest increase seen right here in the UK according to the leading economists at multinational trade credit insurer Atradius

The UK insolvency rate is tipped to grow by 10 per cent in 2019

An insolvency outlook report by Atradius forecasts business failure rates will increase by 10 per cent this year in Britain and by 2.7 per cent across western Europe.

The Insolvency Outlook report by Atradius forecasts business failure rates in developed markets will increase by 2.8% this year – the first rise since the global financial crisis. The rise is largely driven by the loss of momentum in the global economy with growth forecast to slow from 3.2% last year down to 2.6%.

On top of this the firm predicts insolvency rates will increase by a further 5% in the UK next year, in 2020. And that is based on the assumption the government will ask for an extension to article 50 and not crash out of Europe with no deal on 31st October.

Across Western Europe, business failures are forecast by Atradius to increase by 2.7% this year and 0.7% in 2020.

Slowing economic growth, the escalation of the US-China trade war and looming uncertainty surrounding Brexit and Italian politics are the key drivers of the upswing.

According to the Atradius Insolvency Outlook, the UK faces the highest insolvency increase across all advanced markets, forecast to rise as much as 10% in 2019. The continuing Brexit uncertainty brings delay to any recovery of sterling, keeps inflation elevated and prolongs the drag on business investment.

2020 is forecast to be another difficult year with a 5% insolvency increase; based on a scenario where Article 50 is extended in October with a smooth transition. However, the prospects of a no-deal Brexit or further delay to Brexit followed by a general election are likely to put further upward pressure on failure rates.

Elsewhere in Europe, a 4% increase is forecast for Switzerland, Italy and Belgium. The record-high rate of business failures in Switzerland stems from the aftermath of the Eurozone debt crisis and the scrapping of the Swiss franc’s ceiling against the euro.

In Italy, the insolvency rise is the lagged effect from the mild recession in H2 2018 with future outlook subject to high political uncertainty. Meanwhile, weaker external demand is expected to weigh upon economic activity in France, with a 3% insolvency increase this year. Cooling growth and elevated uncertainty in Germany is expected to increase insolvencies by 1% this year with a 1% rise also forecast for the Netherlands.

Following a very strong decrease in the first half of the year, down nearly 29%, the insolvency outlook in Ireland no longer forecasts increase for 2019 although is likely to see a 2% rise next year; albeit the reality will be heavily influenced by the Brexit outcome. In Spain, after a 4% increase in 2018, insolvencies are forecast to decline 5% in 2019 with a decline of 6% also forecast for Portugal.

Across the Atlantic, a reversal in the downward trend of annual insolvencies is expected in the US with a forecast rise of 3% this year and 2% in 2020 on the back of trade policy uncertainty, higher tariffs on Chinese imports and increasing financial vulnerabilities. Following economic slowdown, Canada is forecast to see a 5% insolvency rise for 2019 and 2% rise for 2020.

Finally, insolvencies in the Asia-Pacific region also face the first annual increase since 2009. In Japan, a 2% increase in insolvencies is forecast for both this year and next, while in Australia, insolvencies are also expected to increase 2% in 2019 but countered with a 3% decline forecast for 2020.

The International Monetary Fund (IMF) has also cut its global growth forecast for 2019 from 3.3 per cent to 3.2 per cent in July. It cited the US-China trade war and increasing geopolitical tensions in the gulf as reasons for the downward revision.

Meanwhile, the Bank of England cut its 2019 growth forecast for the UK economy from 1.5 per cent to 1.3 per cent in August.  Its growth forecast for 2020 is 1.3 per cent.

A robust trade strategy is crucial with risks assessed and mitigated against in real time.

Stuart Ramsden, Head of Commercial for Atradius UK said: “The strain from a global economic slowdown, political uncertainty and trade tensions is evident, taking a toll on growth and contributing to the first global rise in insolvencies in a decade. However, businesses cannot be inhibited by this and if they want to achieve growth and must be prepared to face the challenges by protecting their business from any potential negative impact. A robust trade strategy is crucial with risks assessed and mitigated against in real time. Growth and opportunity are still there for the taking but only when hand-in-hand with caution and preparation. As a trade credit insurer, Atradius acts as a trade partner to business to identity both risk and opportunity and, should the worst happen, protect against non-payment.”

Could you spot insolvencies coming?

There are a number of warning signs that a company is in financial distress and action is required.

The warning signs can be singular but usually you see a number of them accumulate and  build upon each other so it is important to be able to sport the warning signals among your key customers and strategic partners.

Warning signal number  1 –  Creditor Action

Most  businesses will miss payments occasionally. All the big plc’s have a number of CCJ’s registered against them because payments to suppliers have slipped through the net.

However,for smaller companies, County Court Judgements (CCJ’s) should be a big red flag that all is not well.

Companies can settle a settle a CCJ within 30 days and it dissappears from their record, so outstanding CCJs should be a massive warning sign to potential suppliers.

If there are numerous CCJ’s it would seem pretty clear that a business cannot meet its liabilities as and when they fall due.

CPA issues warnings in big red writing on its credit reports to highlight this warning sign.

Warning signal number  2 –  An increase in Creditor and Debtor Days

If your customer starts to pay you later than usual then it can be a warning signal. That is not the time to extend them further credit – rather tighten the leash.

however you can spot issues just looking in the accounts of the business.

An increase in delayed payments to creditors is a sure sign that the business is sustaining financial difficulties and very often leads to restricted credit facilities, poor credit ratings, difficulty getting supplies and increased costs due to lost discounts.

When you look at the accounts of your customer and notice either an increase in particular trade debtors or sometimes creditors,that doesn’t match an increase in turnover,  it should be a concern.

An increase in trade debtors or debtor days would indicate the subject is struggling to pay its suppliers in the way it used to.

An increase in creditors would indicate a problem with their credit control or perhaps problems with one or more of the subjects customers. If your potential customer can’t get paid, how will they pay you?

When a company is facing financial instability, cash is king.

Warning signal  number 3 – Cashflow

Most businesses suffer  peaks and troughs in cashflow and the timing of a financial year end can be arbitrary.

Who is to know whether a payment from a customer arrived just after the year end, or a big supplier invoice had to be paid before the year end.

However, if you notice any big swings in cash being held by your supplier, or movements in working capital, then that should raise the alarm.

Don’t be afraid to ask them for an explanation.

They are after all asking to borrow from you. The banks would ask.

Has there been a swing from one type of debtor to another? Has there been a fall in total assets. All major changes need to be questioned and checked.

Cash becomes king!  If cash is falling and working capital is shrinking then  it will lead to financial problems. Directors very often when facing cashflow difficulties, either try to increase their overdraft facilities and/or introduce personal monies either from their own resources or family and friends. Whilst this may alleviate current cashflow difficulties, it doesn’t necessarily address the cause of the company’s cashflow issues.

Warning signal number  4 – Falling Margins

We live in an extremely competitive environment and in most businesses profit margins are under more pressure than at any time in history.

Sales are critically important but it can be said that whilst turnover is vanity, net profit is sanity.

No amount of turnover can compensate for a lack of profitability and if margins are being squeezed, it suggests that the costs and expenditure are too high and the sale price of goods to the end user is too low.

Narrow margins make a business vulnerable to the impact of small changes in other areas of its operations from sales levels, the cost of raw materials, interest rates and even the impact of staff absences.

If your customers margins and profitability are falling or if they are already loss making then this needs to be kept track of. Are there issues with their supply chain? Are they vulnerable to a change in market conditions?

When you extend credit to another business, you are effectively acting like a banker to them. So keep an eye on the issues they are facing and watch for warning signs that insolvency could be around the corner.

Do you sell on credit?

With rising insolvencies it is essential that you stay on top of the credit limits you grant customers and watch carefully for any late payments.

CPA can monitor your key customers for you, help you set appropriate credit limits and alert you any changes that happen.

98% of insolvencies are predicted by the algorithms used to create our credit scores.

Those customers in danger will look for the easiest option to boost their cash-flow. Don’t let it be you.

You can’t just assume your customers can and will pay you eventually, no matter how big their name is.

It is essential to have credit management systems in place to monitor and check your customers credit worthiness.

It is also best practice to use a trusted third party like CPA to make sure you are paid on time by customers, no matter how good a name they have.

About CPA

The Credit Protection Association can help!

Formed in 1914, CPA has been providing credit management services to SMEs for over 100 years.

At the Credit Protection Association, we provide first class credit information that can help you avoid being over extended to customers who are at risk. Our monitoring service can flag up warning signs long before the end, giving you the chance to adjust and reduce your exposure. We provide recommended credit limits and credit scores on a traffic light system and can help you set appropriate credit policies for your customers.

We regularly publish lists of the latest insolvencies but by then it is too late. Our credit reports however predict approximately 96% of company insolvencies long before they arrive.

Companies in trouble usually have very bad cash flow and they try to deal with it by delaying payment to their suppliers, increasing your exposure to them.

If you supply on credit, help us help you identify the risks.

Why use a third party collector?

As a third party collector, we can also get your payments prioritised over those who are not as hot on collections. When you customer receives a letter from the Credit Protection Association regarding their outstanding account, they are going to want to get that resolved as a priority. Our overdue account recovery service can get your unpaid invoices to the top of their “to do” list and get your invoice paid.

Over the years we have collected billions in overdue invoices for our customers.

Our debt recovery and credit management services give our members the financial freedom needed to grow and prosper, while our new Late Payment Compensation department could unlock hidden potential and offer the compensation needed to springboard your business to success.

The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections

Ready to speak to an advisor?

For help or advice on credit management, entirely without obligation.

Call us today

0330 053 9263

CPA is passionate about late payment

The Credit Protection Association has been protecting smaller firms against poor payment practices for over 100 years.

We are extremely passionate about breaking the late payment culture that holds back the UK economy and threatens many SMEs with cash flow difficulties being the single biggest killer of Britain’s small businesses.

If you were regularly paid late we can help. Those former customers used you to boost their own cashflow, regularly paying you late.

As a result you had extra costs, you had the distraction of having to chase payment, you had opportunity costs because your capital was tied up in their late invoices.

Under little used legislation, you are entitled to compensation for those late payments.

Now you can boost your own cash-flow.

CPA can help unearth the those hidden treasures.

We have the technology to reveal the compensation you are due and we have the extensive experience and expertise to then turn those claims into cash.

Yes, CPA can help you boost your business cash-flow.

Don’t let your bankers control you, contact CPA today.

The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections

Read our blog here on how to crack down on the late payment culture.

Read our blog here on how to give late payers the slap they need.

The “Why” of the late payment culture.

New PM should walk the walk and back small firms over late payments

Paying late is “crack cocaine” to big business.

Late payment culture risks “spiraling out of control”

visit our late payment compensation page

See our full blog and FAQ on late payment compensation

Do you realise you could be sitting on a fortune?

Late payments often result in a cash flow crunch and leave SMEs in need of a cash injection.

If you sold B2B on credit then there may be a hidden source of capital you can call on.

If you fancy an bit of extra cash in your business, rather than jumping through hoops with your bank, you could look to uncover the resources from an unexpected source within your own business.

Not many are aware but there could be a hidden fortune within your business, sitting there, just waiting to be uncovered and released.

We can help you uncover the pile of gold, you didn’t even know you were sitting on.

If you trade with other businesses and were often paid late then you could be entitled to significant compensation.

Under little known and under-utilised legislation your business could be due huge amounts in compensation that you didn’t even know about.

Let’s be clear – this is not a way to weaken any customer relationships you value. It is one that identifies who’s been paying late and then recover the potentially significant sums in compensation using Late Payment Legislation from businesses where the relationship has already ended.

You can pick and choose who you want us to follow up – but once we’ve agreed which companies you’d like to pursue compensation from it’s a fast process and there’s no financial outlay to you whatsoever. My team at CPA put its expertise to work to recover the compensation due and fight late payment culture.

That compensation could provide the cash boost your business needed.

But don’t delay, that compensation evaporates if not claimed within six years of the late payment.

How can CPA help?

CPA has developed a unique technology to dig into your accounting records and discover the cash injection you are due by means of compensation. The software does all the hard work. Our software interacts over the cloud with over 300 different software packages, working directly with your accounts package, just so long as it’s stored on a computer.

We recognise that most companies do not have the resources to spend time on the identification and calculation of Late Payment Compensation. Our service can produce an Analyses within just a few days with (usually) less than 30 mins of co-operation from our clients. We work directly with over 300 accounting packages but can also work with bespoke accounts packages. Indeed, speed is essential as the oldest invoices may fall foul of the 6-year time limit.

Once the Sales Ledger Analyses is made available to clients, all that is required is that management decide which commercially sensitive ex-customers to remove from the list and return it to us.

CPA then uses its years of collection experience to explain and recover the Late Payment Compensation Claims. Clients do not handle any part of the recovery process as our team will take all communications from the companies against who the claims has been made. Often, it’s simply a case of explaining the legislation, sometimes we have to go all the way and enforce the legislation through the courts.

The result is that we are realising clients’ claims worth tens and sometimes hundreds of thousands of pounds which, of course, is pure net profit.  You may also be among the recipients of “hundreds of thousands of pounds” should you elect to take advantage of our services.

We do the work, you receive the cash.

If you have supplied goods and services to businesses on credit and were regularly paid late then you could be due significant sums in late payment compensation.

We are talking to companies and unearthing claims in the hundreds of thousands from former business customers who paid them late. Large business customers who abused their power to inflict unfair and sometimes illegal payment practices.

We are helping business owners  who are looking to boost the returns from their business before they retire. We are helping businesses who have lost major clients after years of loyal service to get properly compensated for systematic late payment. We are helping companies that were looking to close down, who looked insolvent and finding that cash injection they need to avoid insolvency.

Those former clients who regularly paid you late can finally be made to pay.

Ready to speak to an advisor?

For help or advice on credit management, entirely without obligation.

Call us today

0330 053 9263

The Credit Protection Association is a credit management company established in 1914. If you supply goods or services on credit then we can help you!

The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections

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