Be Prepared – Credit Control and Early Debt Management Action

Posted on: December 2nd, 2015

Businesses of all shapes and size face daily challenges and those operating within the transport and logistics sector are certainly not immune to these. In 2014 the number of insolvencies within the sector rose by 20% compared to the figure in 2010 and it is anticipated that this trend will continue*.

Many businesses have struggled to maintain competitive pricing in a period of consolidation at the top end of the market, combined with high levels of investment in technology. Regrettably the shortage of domestic drivers continues to produce higher wage demands and an over-reliance on agency drivers. In the wake of Black Friday and the impending Christmas rush, supply chain inefficiencies are expected to lead to financial losses despite periods of high demand. This risk is exemplified by the insolvency of City Link, the parcel carrier that went into administration on Christmas Eve last year.

At Coffin Mew we understand the implications of these challenges. One of the greatest causes of failure remains consistent across the board for all types of businesses; cash flow crises caused by bad debts.

The reality is that all businesses are looking to preserve cash, so if a customer owes you money, then problems can escalate quickly. Too often getting paid on freight invoices is a drawn-out and difficult process. Customers are notorious for disputing things such as rates, fuel surcharges and accessorial fees. It is all too easy to let disputes and invoices drift; however doing so only decreases debt recoverability.

Over recent years, transport and logistics businesses have experienced their fair share of difficulties when it comes to bad debts incurred as a result of a corporate or individual insolvency. Often they are one of the last creditors to be engaged by a failing customer; for example, where they are providing logistics services for a customer that is winding down and releasing remaining stock and goods in a last-ditch attempt to generate revenue. The danger in this scenario is that they first they hear of the customer’s financial woes is when a letter arrives notifying them that an insolvency practitioner has been appointed to deal with the customer (as administrator, liquidator, or supervisor of a company voluntary arrangement).

Of course it is impossible to have any real control over whether a customer’s business fails or not and, where the market demands terms of credit, a certain amount of exposure to bad debt is inevitable. Transport and logistics businesses therefore need to be vigilant when managing their debtors. Early warning signs include requests for extended credit terms, changes in the customer’s requirements such as the frequency and quantities of haulage, and, most obviously, not settling invoices on time.

If a customer should fail, leaving you with unpaid invoices, or if failure appears to be on the cards, then Coffin Mew’s new Creditor Support offering, provided through its Insolvency & Business Recovery team, can help.

Creditor Support is designed to assist and guide those owed money by failed or failing businesses – from explaining your rights, what information you are entitled to, and how the insolvency process works generally.

Ed Bible, Senior Associate in the Insolvency & Business Recovery at Coffin Mew explains:

Many people do not realise that as a creditor of an insolvent business they have certain rights, including the ability to vote on the appointment of an insolvency practitioner and the basis for calculating their remuneration. They also have the opportunity to provide information to the insolvency practitioner about the conduct of the business, and those in control of it, during the period leading up to failure, as well as the right to receive information about the administration of the insolvency. All these things can directly affect the possible outcome for creditors.

 

Creditor Support is a simple service that provides you with:

  • an honest appraisal of the prospects of recovery of the debt owed to you;
  • advice on the insolvency process and your rights as a creditor;
  • guidance on the appointment of an insolvency practitioner; and
  • a recommendation about insolvency practitioners best suited to deal with the customer in question.

Ed adds:

The earlier we can get involved in advising a creditor of a business, the better, particularly if an insolvency practitioner is yet to be appointed.

 

*According to research conducted by accountancy firm Moore Stephens