Be prepared – credit control and early debt management action

Posted on: October 27th, 2015

Businesses of all shapes and sizes face daily challenges, and those operating within the recruitment sector are certainly not immune to these. A number of recruitment companies have struggled to remain competitive in recent periods of stringent cost-cutting. Others have been affected by hiring bans imposed by some larger clients as well as, in some cases, fewer recruits or temps being needed in the market place.

Despite this, the greatest link to failure remains consistent across all types of business; the cash flow crisis caused by bad debtors. The reality is that all businesses are looking to preserve cash, so if such a business happens to owe you money, problems can escalate quickly. This is one reason why the numerous offerings from invoice discounter sectors have been attractive to the recruitment industry, however, this is not an option which is available or affordable in every case.

Recruitment companies have, over recent years, experienced their fair share of difficulties when it comes to bad debts incurred as a result of a corporate or individual insolvency.

Often recruitment companies can be one of the last creditors to be engaged by a failing company; for example, where they are providing temporary staff to a business which, for economic reasons, has made much of its own workforce redundant, but hopes that with a lighter and temporary workforce they will be able to turn the corner. The danger for a recruitment company in this scenario, is that the first time it discovers the customer is in financial trouble might be when a letter arrives notifying them of some kind of formal insolvency process of its customer.

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 at any one time has to often be accepted. Recruitment companies therefore need to be vigilant when managing their debtors. Early signs of problems can include requests for extended credit terms, significant changes in the requirements of a customer, for example a significant change in the type and number of temporary staff required by them, and most obviously default on paying invoices on time.

If a customer should fail, leaving you with money owed, or it appears to be on the cards, then Coffin Mew’s new Creditor Support offering, provided through its Insolvency and Business Recovery team, can help.

Creditor Support is designed to help and guide businesses that are owed money from failed businesses – from explaining what rights that business has, what information it is entitled to, and on how the insolvency process works generally.

Ed Bible, Senior Associate Solicitor at Coffin Mew explains:

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

Credit Support is a simple service that will provide businesses with the following:

  • An honest appraisal of what chances they have of receiving any money back;
  • Advice on procedures and your rights;
  • Guidance on the appointment of insolvency practitioners (IPs); and
  • Recommendations on alternative IPs that may be better suited to the position.

Ed adds:

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