When Big Businesses Go Bust
We are hearing on a regular basis about the collapse of yet another high street firm and there is always a collective sigh of relief by those businesses that have not been affected but, for the unluckier firms, it could mean the end of their business. MFI went into administration in November 08 owing approximately £30m and with only £600k to share between the creditors, a huge amount of money is going to get written off. One of the many firms affected by this are Haulier Cranleigh Freight Services (HCFS) who have also been forced in to administration as a huge 18% of their turnover came from MFI. Sadly, the Pareto ratio (the 80:20 rule) has proven correct in this instance and it was the downfall of HCFS. The impact on HCFS’s creditors is not yet know and, potentially, there could be further administrations as a result of the problems MFI experienced. This should be a lesson to all credit managers and business owners to alleviate the risk as much as possible if you have similar ratios on your customer base.
Research conducted by Credit Collections and Risk in December 08 found that a massive 76% of readers were finding that it was taking longer to get paid and recent research by the Institute of Directors found that 95% of those experiencing longer payment terms are having this issue with large and medium sized businesses. The government’s Payment Code was issued in December 08 to address this and, bearing in mind that it only asks the debtors to pay according to the terms agreed at the outset of the contract, we are still waiting to see if it does anything to alleviate the problem. It is good news to see that some of the larger companies have signed up already including Asda, British Gas and the John Lewis Partnership – so if any of these firms owe you money outside of the terms you agreed with them, get in contact with them immediately! Visit this website for more information about the code www.promptpaymentcode.co.uk
Furthermore the Forum of Private Businesses has a ‘Hall of Shame’ for bad payers. Firms currently on there include Computacentre, Matalan and House of Frasier. You should check the list to see if any of your customers are on there and make applications for your problem debtors to be added. It is highly likely that in 2009 a large amount of companies will be added to the Hall which may, ultimately, provide creditors with a better of idea of their potential and current customer’s ability and willingness to pay their debts.
Sadly, we are going to see more businesses fail before we get out the other side of this recession and we can only hope that our own businesses are not forced into administration as a result of it. Keep a very close eye on your Pareto ratio, check out the Prompt Payment Code and the Hall of Shame and use them both as fully as possible.