Debt recovery & a rise in interest rates - CPA | The Credit Protection Association

Will any of your customers struggle should interest rates rise?

On Monday in our business news post we drew attention to research by R3 that pointed out that 4 percent, one in twenty five businesses would struggle to live with an increase in interest rates of just 0.25%. It was estimated that some 80,000 would be unable to repay their debts if rates were to rise.

Many UK companies are struggling with the sharp fall in the pound, the rise in the national living wage, rising inflation and pension auto enrollments.

The research showed that 96,000 companies were only paying interest on their debt and were not paying off the capital on their liabilities. This is a common characteristic of “zombie businesses” which are being artificially kept alive because of ultra low rates but which are technically insolvent and have little long term survival chances.

Thousands of companies are walking a very fine line. If interest rates were to rise it could be enough to send them over the edge. A rise in interest rates would also hit consumer spending which is already jittery over brexit concerns. We could be therefore facing a rise in business insolvencies.

Are any of your customers at risk? If your customers are at risk, what is your exposure? CPA status reports can help you assess the credit risk of your customer base and CPA monitoring can alert you to any changes in their situation. For your most risky clients, keep them on a tight rein and don’t allow them to sit on your invoices long after the due date. If they resist payment and do not respond to your reminders then instruct CPA via the Overdue Account Recovery System.

If you are not a member yet, why not find out how these services could help protect you from your clients who are the most exposed to a rise in interest rates. Call us on 020 8846 0000 and we will be happy to talk to you and see how our systems could be implemented into your own credit policy.

James Salmon, Operations Director, 8th June 2017.