Factoring Finance Blog – insolvencies caused by supply chain partners

Recent research from R3, the Association of Business Recovery Professionals, has revealed that one in four (25%) current insolvencies are caused by a companies’ direct clients, or supply chain partners going bankrupt.

By far and large the single biggest killer of small business in the UK is, and will likely always be, poor cash flow brought on by late payment issues, the stage before the a bad debt and a further stage before customers going out of business.

This domino effect caused by customers (i.e. trade debtors) means that a firm with otherwise healthy prospects can see a huge decline in cashflow if a large customer is declared insolvent, leaving an unpaid debt. When a business is wound up or declared bankrupt, each creditor receives a percentage of what they are owed.

However, this nominal amount is often not enough to shore up a company’s balance sheet, causing knock-on effects. These may include delaying the business’ payments to its own creditors, causing further disruptions in the supply chain, or reducing liquidity which could have been utilised to capitalise on growth opportunities.

It is quite often the case that when one large business (e.g. Woolworths) goes under it drags its suppliers, distributers, and others into the mix.

Credit insurance policies provide peace of mind for businesses, regardless of their size and sector. The facility protects a companies’ working capital and issued invoices, allowing them to trade in confidence, without the fear of insolvent clients having a devastating domino effect on cashflow.

If you have some questions on invoice finance or some concern about late payment problems simply get in touch with Factoring Finance for more details or a no obligation discussion. You can use the Online Enquiry Form on our contact page, the ‘Am I eligible’ tool in the top right hand corner of the same page or call 0151 632 0877 at your convenience.

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