At least one fifth of UK corporate insolvencies in the past year were caused by late payment or the insolvency of another company, according to research by insolvency and restructuring trade body R3 highlighting this is as a longstanding issue which needs addressing
Its survey of the insolvency profession found that late payment for goods or services was a primary or major cause of 23% of insolvencies in the last twelve months, while the failure of a supplier or customer was the primary or major factor in 20% of cases.
The latest research reveals the extent of the problem has shown no improvement since 2014, when a previous survey of the insolvency profession found that late payment was a primary or major factor in 20% of corporate insolvencies.
Andrew Tate, R3 president, said: ‘A business can have a great product and great staff, but if it doesn’t get paid for what it sells, or if it is over-reliant on one supplier or customer, things can go wrong very quickly.’
‘The serious implications of late payment is recognised by the high profile the issue now commands. Unfortunately, government promises and other initiatives don’t appear to have yet made any real impact on the scale of the problem.’
Over half (57%) of insolvency practitioners identified construction as the sector with the worst track record for late payment, in line with findings from a previous member survey in 2014 (59%).
Tate pointed out that this is also consistently the sector with the highest number of corporate insolvencies, suggesting that late payment problems and relatively high insolvency rates are not a coincidence.
Previous research conducted by R3 found that 6% of UK businesses, equivalent to 113,000 companies, were creditors in an insolvency last year.
The trade body is urging companies to take precautions to minimise the risk other insolvencies pose to a business. One such option is to make sure terms and conditions include an effective ‘Retention of Title’ clause – checked by a lawyer – to ensure the retrieval of goods from an insolvent customer if they have not been paid for.
R3 is also recommending businesses take steps to reduce the risks posed by its supply chain and customer base, including checking who they are trading with, keeping track of invoices and making sure payment terms are met.
Tate said: ‘Both late payment and the “domino effect” have been identified as leading causes of insolvency by the profession so more needs to be done to prevent needless financial concerns for businesses.
‘In this time of uncertainty following the EU referendum, we should be doing everything we can to mitigate problems for the business community, making it easier for UK companies to carry on.’
