A cause for concern arises from the latest business insolvency figures, indicating a challenging economic scenario. More than 22,000 companies went bust in 2022, according to the Insolvency Service, the highest number since 2009.
An overwhelming 85% of these insolvencies were creditors’ voluntary liquidations (CVLs), which were at a record high, and it’s probable that most were debt-laden businesses that decided to cease trading before the decision was made for them.
Worryingly, there are many more so-called zombie companies out there—as many as one in five firms in 2020, according to the thinktank Onward-who have lingered on thanks to government assistance during the pandemic and low interest rates. Now both of these life support systems have ended and other threats have emerged, such as energy costs and other overheads, supply chain problems, and faltering demand. With little prospect of relief for these struggling, indebted companies, insolvencies can only go up.
During the insolvency process, supplier claims are typically towards the back of a long line of higher-priority creditors like banks, employees, and HMRC, so they are unlikely to receive the full amount owed. Of course, some suppliers may not recover from the initial impact of the default on their cash flow.
Cashflow insolvency, when a business is unable to meet its day-to-day costs, is one of the most common reasons for company failure. Fledgling businesses are most vulnerable to this because they have not had the chance to build cash reserves and are usually operating with tighter margins. Of the 397,540 businesses created in the UK during 2016, only 38% were still around in 2020, according to business demography data released by the ONS in November 2022.
ONS statistics also show that there were approximately 2.9 million active businesses in the UK during 2021, with 364,000 firms born between 2020 and 2021 during the pandemic (up from 333,000 the previous year). The challenge for all these businesses is to maintain a healthy cash flow by avoiding the zombies out there.
Whether you are a new or established business, here’s how Coface can help you trade safely and with confidence:
1. Compare the risk of bad debt for each customer with our powerful Business Information tools
Coface Debtor Risk Assessments (DRAs) give a unique insight into a company’s probability of payment default over a twelve-month period with a score of 0–10 (the lower the score, the higher the risk). The consistent scoring process draws on a wealth of intelligence, including our database of 130 million companies, more than 700 in-house risk analysts and underwriters, and payment incidents notified by our 50,000 credit insurance clients and global partners.
Alongside the DRAs, we can support your credit management with snapshot credit reports, full credit reports, and customised credit opinions, so you can see the limit we would be prepared to cover, but with no obligation to obtain insurance.
2. Stay right up to date
Don’t be lulled into a false sense of security by publicly filed accounts, which are often akin to historical documents rather than an accurate guide to a company’s current financial situation. Our business depends on making accurate underwriting decisions, so we have to dig deeper and monitor real-time information. That means we can share the latest picture with our customers and alert them when things change. We’ve also created an intuitive online risk management tool, URBA, which enables you to monitor trading partners and drill down to see detailed financials and analysis.
3. Protect cash flow with cost-effective Credit Insurance options
One of the biggest benefits of credit insurance is peace of mind: your company will be protected from losses arising from a customer’s non-payment or insolvency, whether domestic or international. You can recoup up to 90% of the invoice amount, and Coface pays claims as quickly as 30 days to minimise the interruption to cash flow. That’s reassuring for you and also for your investors.
Our policies include single customer cover and our comprehensive EasyLiner (for companies with annual turnover up to £3 million) and TradeLiner products, which include business information, credit insurance, and collections of unpaid invoices.
4. Recover what you are owed with professional collections
Writing off bad debt is a bitter pill to swallow. As well as being damaging to your bottom line, it means you have to increase turnover just to make up the lost ground. However, chasing outstanding payments can be hugely time-consuming and labour-intensive, especially if customers are in a different country or just playing hard to get.
Outsource collections to Coface, and you will have a team of trained, multilingual collection professionals ready to act on your behalf. We will make contact with debtors within 24 hours and have the resources and reputation to get results.
5. Explore new opportunities
Moving away from high-risk zombie customers is one part of the equation, but you also need to navigate towards genuine opportunities for sustainable growth. Coface can help you carry out due diligence on prospective customers through our Business Information services, as well as research potential new market sectors and territories with our expert reports.