Commercial Debt Recovery Trends

Trends to watch as Andy Burnham arrives at No. 10

As Andy Burnham enters Downing Street, businesses across the UK are getting ready for increases in taxes and higher running costs for their businesses. Many finance teams and credit controllers are seeing the same pattern repeat itself. Their customers are taking longer to pay them, and chasing overdue invoices is becoming an increasingly larger part of their day.

Commercial debt recovery never stands still. It shifts with wider economic pressures, industry cycles and even changes of prime minister.

It is important that businesses understand the latest trends to allow their business to stay ahead of the curve and protect their cash reserves and respond more quickly when difficulties arise.

In this article, I will explore some pressing debt recovery trends that I am currently seeing in the market, what these changes mean for your businesses, and how they can stay ahead of the curve.

Increasing Pressure on Cash Flow

Commercial debt recovery activity is on the rise. The main driver behind that is increasing pressure on cash flow. Even the most profitable businesses are feeling the pinch. This is not helped by the rising costs of fuel, materials and wages. This is likely to worsen as Mr Burnham’s new fiscal policies take hold.

This can often ripple through the supply chain. When one customer pays late, the business awaiting payment may in turn struggle to pay its own suppliers. This is an increasing problem I am seeing in the market now.

Shorter Payment Terms are Returning

We all know that during the pandemic and in the years that followed, many businesses extended payment terms to help their customers manage the significant financial challenges that they faced. Fourteen days became 28 days, 30 became 60, or sometimes even longer. In the last 12 months or so, I have witnessed a shift back towards shorter payment terms. Businesses have now realised that extending payment terms is leaving them more exposed to later non-payment. Many are reducing their payment terms to 30 days or below, particularly in the construction and manufacturing sectors.

Quicker Escalation Procedures

This is causing many businesses to escalate unpaid invoices quicker, whether that be internally to their Management Team or externally to their trusted debt recovery agents. Businesses are recognising that the quicker they act, the sooner they will get paid. It often helps to be at the front of the queue and not lagging behind.

Taking a customer to court to recover unpaid invoices does attract legal costs, but in business-to-business debts, when recoveries are made, that often results in a full recovery being made by that business, with all costs being recovered from their customers. In other words, in cases where a successful recovery is made, the whole process will cost the business nothing at all; all costs will be paid for by their customer.

This shows the change in mindset. Debt recovery is no longer seen as a reactive step which should only be used as a last resort. It is now being seen as a proactive cash flow strategy. Businesses that act quickly are finding they collect more and thus have more confidence in their financial planning.

What this means for businesses

The above trends all point in the same direction. Businesses need to take commercial debt recovery seriously, and they need to bring in external support sooner rather than later.

The information and opinions contained in this blog are for information only.  They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice.  Before acting on any information contained in this blog, please seek solicitor’s advice from Gilson Gray.