2023 has been a challenging year for many. Just as businesses were recovering from the COVID-19 pandemic, along came more economic pressures, with costs spiralling, interest rates rising and consumer demand slowing.
It’s against this backdrop that we’ve seen some interesting developments and trends in debt collection during the past 12 months. The overriding message for creditors is that right now you need to be even more diligent in chasing debt, as well as being aware of all the options available to you.
Intentional late payment
Problem debtors can be separated into those who can’t pay and those who won’t pay. The former are, unfortunately, a by-product of doing business. The ‘won’t pays’ are a different kettle of fish. They intentionally delay paying what they owe, often exploiting their trading relationship with the creditor to hang on to their cash as long as possible.
With sustained pressures on both personal and business finances during 2023, the number of ‘won’t pays’ has increased. Fortunately, a good debt collection agency (DCA) can deal with them effectively. Often, it’s simply the fact that a creditor has appointed a DCA which is enough to convince the debtor that it’s time to pay up.
Proposed clamp down on late payment
Late payment is not just a symptom of the current economic downturn. As many small business owners will be well aware, it has been embedded in UK business culture for many years, with big corporations being some of the worst culprits.
In early 2023, the government embarked on the Prompt Payment and Cash Flow Review. The final review report was published in November, setting out a series of actions which the government intends to take to improve payment culture, including extending the scope of the current Reporting on Payment Practices and Performance Regulations.
Pressures on the construction sector
The construction sector has been particularly affected by economic challenges in 2023. Higher materials and labour costs have combined with lower asset values, as well as a downturn in demand for commercial and residential properties.
Although there has been some easing of cost pressures recently, the Bank of England has indicated that interest rates are unlikely to come down any time soon. Therefore, it’s vital for construction companies to continue to do everything they can to reduce the risk of late payment or debt default.
More insolvencies, more risk of bad debts
In August, we highlighted the need for businesses to take action to improve their resilience. This was prompted by the government’s Q2 company insolvency statistics, which showed a 13% year-on-year increase.
The figures for Q3 show no signs of reassurance. The upward trend has continued, with 10% more businesses becoming insolvent than in the same quarter in the previous year. In fact, the last two quarters have seen the highest quarterly insolvency numbers since Q2 2009 and the highest number of creditors’ voluntary liquidations (CVLs) since records began in 1960.
Rise in CCJs continues
An increasing number of County Court Judgments (CCJs) is a sure sign of increased risk for creditors. In June, we reported that claims were up 8% year-on-year, reaching the highest number since Q1 2020.
This upward trend has also continued. The figures for April to June showed a 12% year-on-year rise in CCJs, and in the following quarter there was a 15% increase compared to the same quarter in 2022.
Why work with Redwood Collections?
In a tough economic climate, getting paid what you’re owed can be difficult. Businesses experiencing financial stresses will often delay payment, which can put pressure on your cash flow. If they’re unable to pay at all, you take a hit to your bottom line. If you’re struggling to chase overdue debt effectively, using a debt collection agency (DCA) could be the way to go. In times of economic uncertainty, it makes sense to get help from specialist experts who can devote the time and effort needed to help get back what’s rightfully yours.
We’ve achieved great results in 2023, with our collection rate increasing by more than the rate we’re referred work. We use our expertise (and persistence) to get results, while always acting with integrity and sensitivity. By working with Redwood Collections, you can improve your debt collection capability significantly and help your business Grow Stronger.
