4 ways to reduce risks from the rise of company insolvencies

Small actions to help with extra company risks 

Company insolvencies: It’s often a topic we business owners prefer to avoid, thinking about one of our customers or key suppliers going out of business. But with a 38% rise in insolvencies it’s worth considering how small businesses can protect themselves.

Business with larger customers or complex supply chains are often most at risk; so if you’re in construction, retail and manufacturing it’s worth having a read.

With large tax bills, holidays and a less productive month a ripple effect of late payments often runs through the UK. With cashflow tight from higher input costs and elevated insolvencies this season may be worse. 

So over the Christmas period if you have large supplier or customer commitments, it may be best to take some pre-festive pros. 

Check the company credit scores and limits of your customers and suppliers - at least the big ones

It’s especially important to formed about the financial health of the businesses you depend on, whether they’re major customers or critical suppliers. A company’s credit score reflects the risk of them defaulting on payments or going out of business, so it’s a valuable tool for protecting your operations.

Here are four practical steps you can take:

• Check a company’s credit score
  If a business has a credit score below 30, it may pose a high financial risk. In these cases, you might want to reconsider extending credit or working with them at all.

• Monitor for score changes
  A sudden drop in a company’s credit score can be an early warning sign of financial difficulty. Keeping an eye on changes helps you respond quickly and manage your exposure.

• Look out for legal notices
  Legal filings such as County Court Judgments (CCJs) are strong indicators that a company may already be struggling to meet its financial obligations.

• Stay within suggested credit limits
  Every business has a recommended credit limit. Staying within that limit helps you avoid overextending credit and protects your cash flow from potential losses.

You can use Capitalise to easily credit check and monitor the financial health of the companies you work with.

Chase debts in the run up to Christmas - and put in payment schedules

Our British sensibility often means that calling up customers to ask for payment is probably the least favourite activity for many business owners. 

Unbelievably almost ⅓ of payments are late (ICAEW) so this does mean you need to be hot on speaking to customers.

There are many ways to chase up overdue invoices and accounting platforms such as Xero, QuickBooks and Sage will send out automated emails. This doesn’t however beat putting in the phone calls in the tough months of credit control.

Leaving messages with reception, customers and even trying to call from a number withheld can make sure you get commitment on payment dates. Follow-up with any verbal agreements in email as this will be useful should you have to go to court.

Ultimately you want to be the company that gets their money paid over others during this time period, so don’t be afraid of calling up very frequently.

Start a debt recovery process on customers you know are at risk

At times customers simply may avoid paying. At this point, if no payment dates are forthcoming, we highly recommend escalating bad debt to a third party.

At Capitalise, we can help you access a legal service to recover bad debts on a no win, no fee basis. This is funded all the way to the high court and is a customer friendly but firm legal process from the get go.

Not all customer debt will qualify but if you have good documentation (such as signed contracts and proof of delivering the goods) then it’s likely you can use this service.

Consider using insurance to cover large customers or suppliers 

A product which can help some businesses is insurance. This allows you to insure the risks of customers becoming insolvent so that debts you’re legally due, can be repaid by the insurer.

Trade credit insurance, as it’s called, is common across many sectors and is typically a policy which covers your largest customers. 

It’s paid as a monthly fee and quoted based on the risk of your sectors and customers.

Getting started with company credit checks 

Capitalise gives business owners access to company credit scores, helping you stay informed about the financial health of the businesses you work with. By using company credit checks effectively, you reduce the risk of late payments.

You can monitor up to 20 companies for free, spotting any major risks before they affect you. Need deeper insights? You can upgrade your account to view full Experian credit reports for a detailed breakdown.