UK businesses should tighten their credit management procedures to address the risk posed by late-paying customers says Coface UK as it reveals that late payment has overtaken insolvency as the major reason for UK claims notifications in the first 9 months of 2013.
o the end of September 2013, Coface, a worldwide leader in credit insurance, received claims notifications from almost 590 of its UK credit insurance clients. Of these, 60% were made because of a customer's protracted default and 40% because of customer insolvency. During the same period in 2012, only 33% of claims notifications received were the result of protracted default and 67% received were due to insolvency. The average protracted default claim notification received by Coface in the UK in quarter 3 2013 was just under £25,000.
Andrew Share, Director of Information, Claims and Collections at Coface UK, said:
"Our findings reflect the national trend (see note 1), in that the number of company insolvencies in England and Wales, which although rising by 10.5% in quarter 2, continues to decline since its peak in 2009 and in quarter 3 was 2.0% lower than quarter 3 in 2012.
"However, the level is still much higher than at the start of the financial crisis in 2008 and the current situation for companies remains fragile."
Low interest rates and favourable credit conditions mean that businesses are able to survive, although many are just treading water unable to grow or invest. In this context it's not actually surprising that the percentage of claim notifications made to Coface UK due to late payment has almost doubled; some companies are trying to hold on to their cash for as long as possible even though this can have damaging consequences for their suppliers. As stated above, the average protracted default claim notification in Q3 was just under £25,000. Few companies can withstand this kind of blow to their cash flow if they don't have any credit insurance protection in place.
"Naturally, we are doing our best to support our clients through these difficult times. For example, Coface now pays all claims up to £5,000 on average, within 5 days and all claims within 30 days. However it is important that businesses have an effective credit management strategy in place to monitor their customers' payment behaviour and limit their exposure to late-paying customers."
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