An alternative credit check?

Are you an SME who is contracted to supply (or are considering supplying) a large company? If so, how confident are you payment of your invoices will be paid in a timely manner, if at all?

Why it’s important to check your credit file

In recent times we have witnessed some large companies failing, including Connaught Construction, BHS and recently, Carillion.  With each failure there is a wake of debt owed to thousands of suppliers that will end up being written off.  Some of that debt was unpaid because the supplier was caught up in the contractual web of having to continue to supply or face the potential of being held in breach of contract.  Others may be apportioned to a “Relaxed” credit control.  After all, the biggest customer on your books is too big to fail, isn’t it?  The examples given answer that question!

However, those in charge of considering a supply line to large companies have a tool available to enable them to determine whether the prospect of working with a large company is the “Golden opportunity” or something where you politely say, “No thanks.”

The Small Business Enterprise and Employment Act 2015 (“SBEEA”) introduced a payment policy reporting obligation on all large companies. A “Large company” is defined as one that meets at least two of the following:

  • Annual turnover of at least £36 million.
  • Balance sheet value of £18 million.
  • At least 250 employees.

 

The reporting duties imposed by the SBEEA came into effect from 6 April 2017 so we should start seeing these payment reports very shortly as financial year ends will need to provide for this obligation.

The information required in this report must incorporate a narrative description of the business standard payments terms and include:

  1. The standard contractual length of time for payment.
  2. How suppliers have been notified (or consulted) on any changes in this policy within the financial year.
  3. Description of their policy for resolving disputes relating to payments.
  4. Statistics covering:
  • the average number of days to make payments.
  • The percentage of payments made within 30 days, 60 days and 61 days or longer.
  • The percentage of payments due within the reporting period that were not paid within the agreed payment period.

 

They will also have to reveal whether:

  • Suppliers are offered e-invoicing.
  • Supply chain finance.
  • The policies regarding deducting sums from payments due as a form of charge to remain on the suppliers’ list.
  • Whether they have deducted sums from payments due.
  • Whether they are a member of a payments code and, if so, name the code.

 

This report must be published on a web-based service provided by Government and within 30 days of the end of the reporting period covered. While it is still in its infancy this service should prove invaluable when you are considering working with a large company and should be part of your credit/sales practice before you sign on that dotted line.

A Round Up of Recent Insolvency Statistics and Perhaps More Trouble Ahead!

Last week The Insolvency Service released the insolvency statistics for the fourth quarter of 2017. Whenever these are published, the newspapers will always look for the story without going into the details.

So for example, the press reported that personal insolvencies in 2017 increased by 9% as compared to 2016, Of course that is correct, but they didn’t report that personal insolvencies fell by 11% in Q4 2017 as compared to Q3.

It is of course true that when inflation is higher than increases in wages then it will have an effect on individuals’ surplus income and in many cases (99,196 in 2017), will lead to personal insolvencies. In the short term this is expected to continue.

Another story that didn’t seem to hit the headlines was a 2.5% rise in corporate insolvencies in 2017 as compared to 2016. First this is a small increase in any event. However, it should also be noted that corporate insolvencies have been at a historically low number for a few years now, so a small increase on what is already a small number is not worth mentioning.

So this all seems like reasonably good news for the economy as a whole. On face value it does but at PBC we are starting to see growing signs of trouble ahead.  Over the last 3 months we have seen a growing number of enquiries and work.  It is fair to say that the retail sector (the high street in particular), is struggling, partially because of the reduction in personal incomes., and also businesses which deal with discretionary spend items (for example, new car sales are down).

At some stage we also expect fallout from the Carillion failure as subcontractors and those further down the chain come to terms with the lost income and future work.

It was also interesting to see that the FCA has started to address the issue of interest only mortgages. The FCA estimate there are 1.67 million full interest only and part capital repayment mortgages in the UK and the most of these will conclude in the next 10 to 14 years. Clearly as these come to a conclusion it will have an effect on those consumers and therefore the economy.  Only time will tell.

As always if you or your business is starting to struggle we would always recommend that you take advice at an early stage. Initial meetings with PBC are free and confidential.

PBC ANNOUNCE DIVIDEND TO CREDITORS IN LIQUIDATION

PBC are pleased to declare a dividend of 26.82 pence in the pound to the unsecured creditors of Silver Sovereign Limited.

The company’s major asset was an adverse directors’ loan of approximately £57,000. This has been recovered in full which has allowed a payment to creditors to be made.

Joint liquidator, Gavin Bates, said, “Whilst it has taken some time to collect the payments from the directors in respect of their loan, the approach taken has resulted in a significant return to creditors. It is always good to make payments to creditors”.

The peril of working with a big company

How many times have you heard the story of a SME securing that “Life changing” contract with a big company?

While many can look back and say that really was a life changer, too many fall into an ever-decreasing financial circle. All is going well until the SME gets told the previously agreed unit price is being revised (usually down) while the double-whammy is the large company also dictates when and how much the SME will be paid. Others, such as those working for Carillion Plc, find they are increasing their exposure while the contractual terms oblige them to continue working (with no guarantee of payment) or face potential claims for (say) unilateral breach of contract.

The Government highlight the late payment interest legislation but their stance is based upon vote winning and not the hard reality of business where the larger corporations will simply ignore such demands with the threat you continue working under their preferred conditions or lose the contract entirely.

I mention Carillion but lest we forget others like British Home Stores, Habitat, Mark One, Toys “R” Us and 56 football clubs that have been subject to insolvency; some multiple times.

It is so easy to sit and write this but when an SME has that large corporation opportunity it can be like offering a starving person food. It takes a brave person indeed to turn down such a business opportunity.

The Achilles heel always seems to centre around the terms of contract. Large corporations will generally lay down their terms.  Our advice would be to consult your solicitor and ensure there are safeguards for the SME in that contract.  Okay, that may be a deal breaker but what do you prefer, a contract that benefits both parties and encourages success or to sit in front of an insolvency practitioner telling a tale of woe as your business ceases to trade because it could not trade under the conditions imposed?  Is that really a tough choice?

Should you need further convincing just think of the 30,000 businesses and the £1.5 billion of unpaid debt Carillion has left in its wake. One of those has already spoken to PBC and is wondering how his business will survive losing the £800,000 Carillion owe.  At PBC we are certain this business is not the first victim of Carillion where the owners now see the life changing experience being one of detriment and loss.

If you require any advice or assistance on mediation or probate matters, or any other insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation. Call Gary Pettit or Gavin Bates on 01604 212150 completely confidentially.

Blog written by Gary Pettit

What is insolvency and does it apply to me or my business?

Insolvency is a very simple situation that can need a very difficult and sometimes complex resolution. If you find yourself in a situation where you are potentially insolvent you will need to take a long, clear look at things and decide what is the best option. In this video, Kym Carvell looks at what insolvency means for a business or individual. With over 30 years of experience of insolvency, Kym is a respected member of our team who is able to explain financial situations with clarity, honesty and a sympathetic ear. If you think the situations described in this video may apply to you, or your accountant is flagging a potential issue, your best option is to contact us as soon as possible so we can begin working towards a resolution.

 

Leopards do need to change their spots

It is a common phrase but if a leopard does not change its spots then it remains a leopard. Probably the most recent example of that has been British Home Stores who did not keep up with shopping trends.

Now another big name has fell into difficulty with Toys R Us in the United States falling into Chapter 11. For those who are unaware, Chapter 11 of the US Bankruptcy Code is similar to administration in this Country.  It must be emphasised this latest news involves the American division and neither the UK, European, Australian or Asian operations are caught under the current issues.

The (chapter 11) process is being used to enable the company to restructure approximately $5billion of debt, aided by a reported $3billion of new financing. The issue I would be asking about is more of a practical one.  Recent statistics suggest buying habits for toys are changing with estimates indicating 2016 saw 13.7% of toys being acquired on-line, as compared to 6.5% the previous year.  You have to question whether the large warehouse-style outlet is becoming a dinosaur when compared to the laptop in the home.

Whenever we at PBC look at a corporate restructure we first look at trying to identify what are the reasons for the company experiencing difficulties. After all, a leopard that does not change its spots will only endure a reoccurrence of those issues at a later date.  Toys R US say all 1,600 stores and 64,000 employees in America will be preserved, yet retail has seen the on-line competition bite into their business by another 7%in 2016.  I may be guilty of being too simplistic but often at PBC we find it is the simple things that are over-looked and, in the end come back and bite you.

If you require any advice or assistance on any insolvency-related matter then please contact Gary Pettit or Gavin Bates at PBC Business Recovery & Insolvency on (01604) 212150.

When are creditors paid?

When a company or person is going through a financially difficult time common questions which occur are who will get paid and when? Many people often have a vested interest in a company and there is a very clear order in which they will appear in the order of payment. While this is sometimes frustrating it is a legal requirement and cannot be changed. In this video Gary Pettit, one of our directors and a licensed insolvency practitioner here at PBC, takes you through the basics of what will happen and who will be paid at what point in the process. He will also look briefly at the different ramifications of areas such partnerships and limited companies. As always the advice is to contact us if you feel we can help but this video should clear up some of the more regular questions we hear about payment before, during and after insolvency procedures.

What is Bankruptcy?

Personal insolvency, including bankruptcy is something that nobody wants to face. In this video Gavin Bates, one of our directors , explains a little more about what insolvency means, other options to potentially avoid bankruptcy and what could happen if you do need to take the bankruptcy option. Many people come to PBC with questions such as ‘will I lose my house if I take bankruptcy’ and ‘what about my car and other basic needs’ these are difficult questions and the answer will vary depending on your circumstances but we will work with you to make life improve as fast as possible. For many people, the relief of seeing a solution to their issues is the first sign that they are re-stabilising their life and turning the corner towards becoming solvent again. While the road may still be difficult (and we may not always say what you want to hear) talking and taking some advice could be the first step on your journey.

PBC announce dividend from liquidation

PBC are pleased to report that having already paid preferential creditors in full a dividend of 9.72 pence in the pound was paid to unsecured creditors of GLA Stroud Limited when it was anticipated no funds would be available.

The company was placed into creditors’ voluntary liquidation on 4 June 2014 after the preceding company voluntary arrangement it had entered failed due to circumstances out of its control.

Joint liquidator, Gary Pettit, said, “Asset realisations in any construction industry insolvency can be complex but in this case they were significantly higher than originally anticipated with the retentions due to the company being recovered with the assistance of Leslie Keats.  Also, book debt recoveries were at 95% of the ledger which was achieved by pragmatic negotiation and assisted by good record keeping by the company in the first instance”.

Administration & Creditors’ Voluntary Liquidation

One common mistake that business owners, the press and many others make is to ask ‘is my business bankrupt’ or ‘can my business be bankrupt’. It is only possible for an individual to be bankrupt so a company will go through the process of liquidation or administration. In short, if you are looking at a company that is not in a position to pay the creditors and the situation is clearly not a short term issue then you may need to enter administration or liquidate.

This video clearly explains what the different processes are and Gavin Bates, one of our licenced insolvency practitioners with over 25 years experience, takes you through your options.