Clients who pay late or not at all are causing havoc for Jeff Sutton’s
Kent-based measuring-equipment business, Southern Metrology. Erratic
payments make predicting cash flow difficult and he has to work hard to pay
suppliers on time.
“Some of our customers are on 60 days, some are on 90 days, others are not
paying at all,” said Sutton. “One company had owed us £8,000 since the end
of May. We had to get debt collectors involved to get the money back.”
Southern Metrology is one of the growing number of firms affected by the rise
in company failures. The latest quarterly insolvency figures show more
businesses succumbing to falling sales and late payments.
Receiverships, administrations and company voluntary arrangements are up
almost two-thirds on last year, while compulsory liquidations and creditors’
voluntary liquidations are up 10.5% on the last quarter and 26.3% on last
year.
This year three of Metrology’s customers went under owing a total of £5,500,
said Sutton.
“In the last seven months cash flow has become a big issue. It means we’ve had
to go into our overdraft, which is costing us money. If you have too many
people owing money you can’t pay your debts and it can cause a domino
effect.”
Trading is holding up and Sutton believes the measures the company has taken
to monitor cash flow closely and pursue payments will see it through.
Duane Jackson, managing director of the accounting-software firm Kashflow,
which has been swamped by enquiries about late and nonpayment, fears many
will not survive the downturn.
“We’ve seen an astonishing rise in the number of calls we get from our users
asking how to deal with bad debts because their customers have gone out of
business,” he said. “Typically, we’d get one or two calls on this subject a
week, if any, but recently we’ve had over 50 in one week.
“In many cases people have given their late-paying customers a bit of leeway,
then find they are not answering the phones or the phones have been cut off.
It’s at this point they realise they are never going to get paid. There’s no
point pursuing it through the courts. The best-case scenario is that they’ll
be at the end of a long queue of creditors.
Small and medium-sized enterprises (SMEs) are less well equipped to deal with
cash-flow problems, said Jackson.
“For bigger businesses, cash-flow issues can mean no bonuses, no pay rises and
less spending. No cash for an SME often means the owner can’t pay his
mortgage or staff that month. Each firm that fails will fail owing other
small firms money.”
Business is brisk for David Kirk, a corporate-recovery partner with
Exeter-based Kirk Hills, who also fears the insolvency statistics will get
worse, especially in the new year. “We usually talk to about one company at
a time about insolvency. Right now we’re talking to nine,” said Kirk.
The suddenness of the downturn is catching out many firms as they find it
impossible to adapt to their new circumstances in time, said Kirk.
“If you try to halve the size of the business you still have the legacy and
overheads of a company that was twice the size. Multi-nationals will quickly
make redundancies and cost savings but it’s not the same for small firms.
They don’t react so quickly and try to hang on too long.”
Those companies that do become insolvent often find they have no support from
banks and in many cases cannot get another bank account, said Kirk.
“Credit-card companies won’t touch anyone who has been anywhere near
insolvency. One shop owner I know has been unable to get a card-payment
machine, which means she can’t trade her way out of trouble.”
Brent Milburn found little support from banks as he sought working capital to
resurrect his Shrop-shire-based framing business, called Flex Frame, after
it went into administration in July.
Following rejections from several banks Milburn eventually received an e-mail
from a lender called Venture Finance, offering £30,000 through the Small
Firms Loan Guarantee scheme. “It said that we would receive a letter of
confirmation the next day. On the strength of that, we committed ourselves
to buying back the business.
“The letter never arrived and we did not hear from them again. I eventually
found out from the broker that they had decided not to proceed because they
had seen something in the figures that put them off, which sounded like
total rubbish to me.”
Milburn has been trying to find other bank backing since then without success.
“I’ve spent most of the past two months trying to sort this out and find
funding. Meanwhile, we’ve been living hand to mouth. We only need £50,000
but I can’t raise any more money personally.
“I’ve already remortgaged to invest in new machinery and I can’t borrow any
more.”
Milburn, who has bought the new equipment to produce competitively priced
products, is now talking to a private investor who can see the potential in
the business. “We’ve given up on the banks,” he said. “The investor wants a
majority share of the business and that is probably the way we will have to
go.”
The owner expect someone else to lend him more money to help him to 'buy' back the business that did not trade well during the boom time. I think it was wise for the lender to stay away. People need to remember that no one is obliged to lend anyone money.
steven, berkshhire,