Businesses warned over tardy payers

Sep 25 2008 By Evening Gazette

TEESSIDE insolvency experts have warned that companies who fail to get a grip on tardy payers face an early bath as the economic misery intensifies.

It follows national research in August which showed 88% of smaller firms were not being paid within their credit terms - well over half said clients were getting slower at paying and nearly three-quarters said it was having a serious impact on their businesses.

Mark Gardner, an insolvency and debt collection expert and partner within Darlington law firm Latimer Hinks said some businesses in the region were stalling payment for more than 100 days and the number of otherwise sound businesses going bust as a result of poor cashflow had increased markedly.

"People are only now starting to tackle it, but it’s the old story of bolting the door after the horse has done a runner.

"If you’re selling to other businesses you’d normally expect to give 30 days credit and stretch it to a month and half or 60 days - now in 60 days you can be dead."

The firm, which is organising a seminar highlighting credit control for clients later this autumn, has also launched an advice page on its website.

But Mr Gardner said he fully expected to see the pile of administration files on his desk increase as more firms went under. The construction industry and pub sector were the most vulnerable.

"When you start to get big companies going down, it’s like a surf wave that takes three or four weeks to go down the food chain," he said, referring to recent collapses in the financial market.

More worrying, he said was the necessity for firms to work with new clients as traditional business dried up.

"It’s a sign of the times that people will work for those that they never have before," he said, but he warned that it was important to make sure you knew who you were dealing with.

He said as income fell, many companies were beginning to trawl through debtors lists which had revealed some nasty surprises.

"One of my clients was owed money from the end of 2007 and by the time I got involved, the client had gone into administration."

He said credit control was ‘too important to be left to the office junior on a Friday afternoon" and warned that the credit crunch was having a fundamental impact on customer relationships that needed to be flagged with staff who had no previous experience of a bear market.

"We have sat down with our junior staff here and said ‘this is what a recession is all about’."