Credit Control and Consumer Debt

Credit control relates to business invoices, but ultimately consumer spending is an extension of the same process – if consumers stop spending, then retailers’ revenues fall, and that can quickly pass up the supply chain in terms of delayed payments and overdue invoices, not to mention debtors entering insolvency. So what are the current conditions on the ground? No Appetite for Debt Advice Around 97% of Britons are currently unlikely to be seeking any kind of debt advice, according to a recent survey from R3, the Association of Business Recovery Professionals. The figures, published in early March, relate to the proportion of those surveyed who expected to consult with a debt advisor in the following six months – taking us right through to the end of the summer. However, that does not mean that only 3% of Britons are in debt – in fact, 39% of the study’s participants stated that debt concern affected them. “This snapshot uncovers the huge unwillingness to take debt advice,” said R3 president Frances Coulson at the time. Short-Term Loans Still Find Favour Despite astonishing headline rates of APR – often around the 1,700% mark – payday loans are still popular among a significant subset of the UK population. In late May, R3 revealed that 7% of Britons do not think any changes should be made to the regulatory requirement placed on payday loan lenders – and 8% think they are likely to use such a facility in the coming six months

R3 council member Louise Brittain commented: “If this was taken just as a one-off, and paid back immediately, then it could work – but our research tells us this is not always the case.”

The combination of an appetite for debt and ignorance of debt advice could spell disaster for the retail sector – and as we move up the chain, that’s what we find.

High Street or Bust

Yet more figures from R3, again towards the end of May, show that insolvency practitioners expect the retail sector to post the highest rate of insolvencies for the whole of 2012.

Half of all retailers surveyed were seeing their profits and sales dip, compared with just over a third of companies throughout all British business segments.

In many cases, however, it was not consumer spending that caused the concern, but other economic issues such as interest rates and bank lending.

“This is perhaps a reflection of the fact that, across the board, businesses are experiencing serious cashflow problems and, consequently, are looking very carefully at what they spend,” said R3 president Lee Manning.

Never Break the Chain

All of these impacts are likely to filter up through supply chains in the months to come, with cancelled orders and aNewton’s-cradle-style chain reaction of delayed payments unlikely to avoid many businesses, whichever sector they may operate in.

To compensate, many companies may feel compelled to adopt more stringent credit control measures – imposing clear payment terms on customers and chasing non-payment more promptly when an invoice goes unpaid.


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