Late payment and other business failures cause over 1-in-5 corporate insolvencies
At least one fifth of UK corporate insolvencies in the past year were caused by late payment or the insolvency of another company, according to new research by insolvency and restructuring trade body R3.
A survey of the insolvency profession reveals that late payment for goods or services was a primary or major cause of 23% of insolvencies in the last twelve months, while the failure of a supplier or customer was the primary or major factor in 20% of cases.
Andrew Tate, R3 president, says: “On the surface, late payment or the failure of another company can seem like factors outside a business’ control, but there are plenty of steps a business can take to reduce the risks posed by its supply chain and customer base.
“Businesses must not be complacent when it comes to checking who they are trading with. If a business is not paid upfront it is essentially acting as a lender – albeit without the protections a secured lender enjoys. Keeping track of invoices and getting paid is vital.”
The latest research reveals the extent of the problem hasn’t improved since 2014, when a previous survey of the insolvency profession found that late payment was a primary or major factor in 20% of corporate insolvencies.
Andrew Tate continues: “The serious implications of late payment is recognised by the high profile the issue now commands. Unfortunately, government promises and other initiatives don’t appear to have yet made any real impact on the scale of the problem.”
Previous research conducted by R3 found that 6% of UK businesses, equivalent to 113,000 companies, were creditors in an insolvency last year.