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Late payment to blame for insolvencies

06 September 2016

At least one-in-five UK corporate insolvencies in the past year were caused by late payment or the insolvency of another company, according to new research by the Midlands branch of insolvency and restructuring trade body R3.

The survey of the insolvency profession reveals that late payment for goods or services was a primary or major cause of almost a quarter (23 per cent) of insolvencies in the last 12 months, while the failure of a supplier or customer was the primary or major factor in one-in-five (20 per cent) cases.

More than half (57 per cent) of insolvency practitioners identified construction as the sector with the worst track record for late payment, in line with findings from a previous R3 member survey in 2014 (59 per cent).

R3 Midlands chairman Chris Radford (pictured), a partner at Gateley in Birmingham, 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.

“On the surface, late payment or the failure of another company can seem like factors beyond the control of a business, but there are plenty of steps that can be taken to reduce the risks posed by the supply chain and customer base.

“Businesses must not be complacent when it comes to checking who they are trading with. If a business is not paid up-front, it is essentially acting as a lender, albeit without the protections a secured lender enjoys. Keeping track of invoices and getting paid is vital.”

The R3 Midlands research also reveals that the extent of the problem has not improved since 2014, when a previous survey of the insolvency profession found that late payment was a primary or major factor in one fifth of corporate insolvencies.

Mr Radford added: “The serious implications of late payment are recognised by the high profile the issue now commands. Unfortunately, government promises and other initiatives don’t yet appear to have made any real impact on the scale of the problem.”

 

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