Lax payers erode small firms’ survival prospects

The UK is currently witnessing 80 company closures each working week, in a sign that high energy and fuel bills are taking their toll on small businesses.

Between January and June, 9,589 companies have folded - compared to 8,805 in the same period last year, according to fresh data from credit specialist Experian.

Obtained by PA, the data shows businesses in the plastics and rubber sector have been hit the hardest, closely followed by food retailers and, to a lesser extent, construction companies.

But the tougher times are being accounted for, the specialist hinted, as the growth in closures is starting to ease, as firms factor in higher prices and start to clampdown on late payers.

The trend of firms ‘wising up’ to the current climate was evidenced by a cooling in the number of closures from April to June, when 4,720 firms failed – compared with 4,627 in the same period last year.

Reasons explaining steeper closures rates in 2006 came from the Better Payment Practice Group, which recently found four out of five companies have successfully issued a winding up order.

Of the 370 micro businesses using the Group’s portal, over a quarter had issued an order to put a non-paying commercial debtor into compulsory liquidation, with 87 per cent reporting success.

Although the Group’s experts said winding up orders should be seen only as a last resort, they conceded they are an “effective method” to obtain payment of outstanding debts.

“Only [to be] used when other collection methods have proved ineffective,” advised Philip King, BPPG member and director-general of the Institute of Credit Management.

“It is also sensible to serve a Statutory Demand on the company first. This is free, save for the cost of preparation, and failure to comply with a Statutory Demand within 21 days is an automatic ground for winding up. If a company is solvent, the mere threat of winding up is often effective in getting them to pay what is due,” he said.

King added some guidance for the last resort open to small suppliers when chasing a late and evasive payer who has refused to honour their obligations.

“It works by winding up the debtor company if payment is not received within 21 days and then using its assets to pay those who are owed money.” he said

“However, if the company is insolvent when it is wound up, there are unlikely to be sufficient assets to pay all creditors in full, and only a proportion of the outstanding debt will be settled. In addition, court fees have to be paid to bring an action and, although the court will add these to the amount owed, there is no guarantee that they will be recovered.”



 

19th July 2006

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