UK businesses have been told in no uncertain terms that they should view tightening their credit procedures as a priority, in light of the fact that late payments now account for more credit insurance claims than insolvency.
Coface, a global credit insurance provider, has published statistics specifically for the UK, and relating to the period from the beginning of 2013 to the end of September.
They show that of nearly 600 credit insurance claims made to Coface by UK clients, 40% arose from customer insolvency, but 60% were due to ongoing customer defaults on amounts owed.
The 3:2 ratio is a major turnaround from the same period in 2012, when claims were weighted 2:1 towards insolvency; and in Q3 2013, the average claim due to prolonged non-payment was for almost £25,000.
Andrew Share, director of information, claims and collections for Coface UK, said: “Our findings reflect the national trend, in that the number of company insolvencies in England and Wales, [despite] rising by 10.5% in Q2, continues to decline since its peak in 2009 and, in Q3, was 2% lower than Q3 2012.”
Improving credit conditions and low interest rates are cited as factors helping more companies to survive – even if they are only ‘treading water’ without the funds to invest or grow – but this in itself is leading more to try to hold on to funds for longer, rather than paying promptly.
With the average claim for non-payment coming in at just less than £25,000, Coface say there are relatively few companies able to bear the blow of not receiving this kind of sum when it is expected.
In a related eight-point guide on protecting against non-payment, Coface repeatedly recommend researching clients before extending a line of credit to them, including estimating their likelihood of defaulting, setting their credit limit accordingly, and taking in-house or outsourced action promptly to pursue any late payments.