Latest insolvency figures and falling confidence among SMEs suggest the UK is in an L-shaped recession, report K2 Business Rescue.

Recently released insolvency figures show relatively little change year on year, suggesting that the debate about whether the recession would be a V-, U-, W-, or an L-shape is now over.

Business doctor Tony Groom argues that four years after the economy collapsed the evidence is piling up that it is flatlining having not risen off the bottom of the decline.

Whatever the technical definition for coming out of recession may be (ie two successive quarters of growth), he says, a growth of 0.2% for the UK economy means it continues to bump along the bottom of an L-shaped economic decline, whether it is called a recession or not.

Had the recent decline followed the pattern of previous ones we should have seen a fairly sharp three-year V-shape, and the numbers of insolvent companies would by now be climbing noticeably, as they are generally held to do when an economy is on the road to recovery.

An increase in compulsory liquidations and Creditors’ Voluntary Liquidations of 0.1% on the previous quarter and of 6.5% on the same period last year is a relatively small jump, not the dramatic rise that would be expected at the start of a recovery.

Add to this the evidence in the latest CBI quarterly survey showing a sharp decline in confidence among small and medium sized businesses.

They reported that domestic orders remained flat over the third quarter and that export orders had dropped by 8%. They expected domestic orders to fall by another 4% in the final quarter and no growth in exports and were indicating intentions of reducing their stock holdings.

As in the previous CBI quarterly survey firms were still planning to spend 20% less on buildings and 9% less on plant and machinery relative to the previous twelve months.

Investment intentions for plant and machinery particularly have remained negative for the second consecutive quarter – hardly suggestive of any optimism there.

Groom points out what he sees as possibly the most interesting feature of the just released quarterly insolvency figures, which is the noticeable increase in the number of Company Voluntary Arrangements (CVAs) relative to the numbers of companies in Administration as going concern formal insolvency procedures.

Compared to the same quarter last year, the statistics show that CVAs rose by 29.6%, while Administrations rose by only 6.3%. This may reflect the adverse publicity and concern over the use of Pre-Pack Administrations that in turn has promoted the use of CVAs for rescuing a business.

There may still be a question mark about whether the current situation really is the bottom of a traditional economic cycle. This would be supported by those commentators who are predicting that there are a lot of insolvencies lining up for the end of Q4.

Since a rise in insolvencies traditionally indicates the emergence from recession, perversely, this suggests that they are being optimistic rather than pessimistic.

But, says Groom, if the economy doesn’t recover and there is a rise in corporate insolvencies, this will be truly damaging for the UK economy.

There is a huge difference between insolvency to restructure a business to prepare it for growth and insolvency to close it down. The latter will remove jobs from the economy.

Continuing low interest rates and no discernible evidence of banks or other creditors really piling on the pressure, nor any sign of the restructuring that normally indicates the bottom of a recession, coupled with the plummeting confidence of the country’s so-called “engine of growth”, the SMEs, suggest that the economy will bump along the bottom Japanese-style for the foreseeable future at best or will decline further at worst.

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

he price and accuracy of credit ratings would improve with greater competition among providers, the U.K.’s Financial Services Authority said in a report today.

The industry has “high fixed costs, large economies of scale, network externalities” and it has taken a long time for companies to establish their reputations, the FSA said in the report on its website. Increased competition “should ideally improve ratings accuracy.”

The European Commission proposed tougher regulations today to rein in credit-ratings companies amid concerns their assessments of government bonds may escalate the region’s sovereign-debt crisis. The draft would empower investors who lose money to sue ratings firms and includes measures to boost competition in the markets for ratings.

“Policy interventions that facilitate competition, take ratings shopping into account, and avoid imposing further barriers to entry would be desirable,” the FSA said in its report.

Global equity, bond, currency and commodity markets were roiled last week when Standard & Poor’s sent, and then corrected, an erroneous message to subscribers suggesting France’s top credit rating had been downgraded. French 10-year bond yields rose as much as 28 basis points after the mistaken announcement. S&P affirmed France’s AAA rating in a later statement

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

Small business owners across Peterborough are being urged to improve their credit control as the credit crunch continues to bite.

Mr.  Rehman, who operates a firm of Accountants in Peterborough, said: “We know this is a very sensitive issue for small businesses as customer relationships are critical, but when cashflow is being stretched to breaking point, they should seriously consider taking a firmer approach.

Many small businesses will have to rely on their overdraft to cope with late invoice payments and they may also be paying VAT on the debt – something they won’t be able to recoup for many months if the debt does eventually go bad.  And many businesses are forced to stall payments to other parties because they are waiting for payments from their customers.  So late payments have lots of knock-on effects.”

The call comes as the latest figures show that unpaid bills owed to small businesses by their customers are at an all-time high. Payments company Bacs said the national figure rose by 10 per cent in the last 12 months to more than £33 billion. The worst offenders were large companies and, according to Bacs, the retail and distribution sectors were owed the most.

Mr.  Rehman added: “Of course, they will first need to consider their relationship with the customer and look carefully at their own credit management system, but they do have a statutory right to charge interest on late payments – even if it isn’t in their terms and conditions.”

The Government recently announced plans to “name and shame” large companies that fail to pay small businesses promptly, via the Cabinet Office website.

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

Mental illness and money problems very often go together but the link is still unclear.

Nearly nine out of 10 people with significant debt problems also appear to be suffering from mental health disorders, particularly depression and debilitating anxiety. This alarming statistic, which comes from the Consumer Credit Counselling Service (CCCS), helps to explain why so many banks are now setting up special mental capacity and health units in their debt collection teams, and why the Office of Fair Trading (OFT) has just issued guidance in the area.

CCCS – which advised more than 400,000 consumer debtors in 2010 – employs a questionnaire as the first step in its online debt counselling service. Users of this facility are not told at the outset that the questionnaire also tests for possible mental health issues. When compiling the statistics over a month, CCCS found that 86 per cent of people indicated positively for potential mental health problems, ranging from mild to serious. CCCS then recommends to these people that they take further tests or see their GP.

What is unclear is the cause and effect link between debt and mental health problems. On its “debt and mental health” home page, the Royal College of Psychiatrists (RCP) states: “Debt may be a cause and a consequence of mental health problems.” Talking of potential correlations between debt and mental health issues, Frances Walker of CCCS says: “There is definitely a link but it’s quite hard to see which comes first.” Maggie Kirkpatrick, managing counsellor of CCCS South East, says that the 86 per cent figure “seems incredible but it’s probably true”. A mental health issue “is almost synonymous” with a debt problem among her clientele.

The statistics add a strange new gloss to the world economic crisis which was partly triggered by the mis-selling of loans to people who could not afford to repay them. When banks packaged up these loans and began selling them to one another, panic spread as bankers began realising that many such packages could be near worthless. If many problem debtors are also struggling with mental health concerns, then the financial value of these packages is even more questionable.

The current economic crisis marks a turning point. In September the OFT published guidance for institutions which might lend to people with mental capacity issues such as manic depressives. Only this week the RCP issued an e-learning training package for debt collection staff.

“More and more creditors and debt collecting companies are becoming aware of mental health and are taking a more serious and mature approach,” says Anthony Sharp, chair of the Money Advice Liaison Group. He welcomes the OFT guidance and also feels that rules on “treating customers fairly” from the Financial Services Authority have made a big contribution.

“A lot more work is being done,” says Maggie Kirkpatrick. “Most creditors are putting together special departments.” As advice agencies can go straight through to these units, they are immediately dealing with people trained in the law and other issues.

Research from the RCP, which pre-dates that of the CCCS, will be published this month in the Mental Health Review Journal, saying that 50 per cent of people with debt arrears of more than a month have mental health problems. This would mean, according to Chris Fitch, a research fellow at the RCP who specialises in debt, that people with debt issues are twice as likely to suffer from depression and anxiety problems as the population overall. Although the RCP research does not tally with that of the CCCS, it shows that there is a consensus on the gravity of the problem.

Only five years ago statistics were hard to come by. But the issue has risen up the agenda. With UK household debt (excluding mortgages) averaging £8,000, according to the charity Credit Action, many individuals could be plunged into repayment problems if they lost their income.

Some of these statistics may suggest that a rethink is needed on the causes of debt problems. It may be an oversimplification to try to correlate debt to poverty. A neglected link may be that between mental state and debt. One particularly controversial group are the “narcissists”, which are sometimes estimated to make up 1 per cent of the population. Narcissism, while listed as a mental health illness by the World Health Organisation, has been little studied. Compulsive spending is a common feature of this form of megalomania. If someone admitted to compulsive spending, the CCCS “would refer them to a GP”, says Maggie Kirkpatrick.

Another 1 per cent of people are thought to suffer from schizophrenia. The Sheffield Mental Health Citizens Advice Bureau (CAB) is based in Sheffield’s Michael Carlisle Centre, a psychiatric hospital. A “large proportion” of patients have debt problems, says the volunteer adviser David Miles. Debt “almost certainly” makes mental health problems worse, he says. But some of the money issues are, potentially, easy to solve.”One of the big problems is that they haven’t necessarily got their [social security] benefits in place when they are released,” he says.

The CCCS does help people with schizophrenia but rarely during the acute stages. “We prefer not to deal with people in mental health establishments,” says Maggie Kirkpatrick. “We do encourage them to contact us as soon as they are discharged.”

People with bipolar disorder are regularly seen by the CCCS. The mental health laws in England and Wales, as restated in the OFT guidance, make it hard for creditors to press for repayment of a debt if someone accrues debts in a manic phase, has no assets with which to repay them and there is some medical evidence of the problem (from a GP, for example).

“Creditors are looking very sympathetically at these cases, provided they have full evidence, medical and financial,” says Maggie Kirkpatrick.

Another route for people with bipolar disorder is to ask credit rating agencies to attach a note to their file saying they should not be given extra credit. “It is something we do from time to time,” says James Jones, spokesman for the credit rating agency Experian.

But it is important to strike a balance. Chris Fitch of the RCP says: “If people have the mental capacity to understand the terms of a loan and the financial means to repay it, then they should be able to take out that loan. Mental capacity – the ability to make a decision – is not the same as mental health. Many people with mental health conditions have the mental capacity to make an informed decision about taking out a loan.”

Advice agencies are used to setting up arrangements (such as direct debits or the involvement of a friend) for depressives and others which will be stand up well even if the person goes into an acute stage.

Case study: Sam’s story

Now in his sixties, Sam (not his real name) has suffered from depression for decades. Although he is good at maths, he was never taught budgeting. His life was turned upside a few years ago when he ended up being threatened with bankruptcy, had to sell his house to pay the debts and then downsized to rent a flat and try to live within his means.

His story ends happily. “Life is better,” he says now. But he wasted much of his life in the debt/depression cycle and he had to abandon a career as a highly regarded freelance writer.

“Debt stress is particularly bad,” he says. ” You are frightened you could end up in the street or in a mental hospital. They are awful places.”

What got him into trouble was a very precise part of his condition. “I panic and freeze,” he explains. So, even though he was earning well (at twice the level of the average salary), he got into difficulty as he became too frightened to open his bills. This simple unfortunate response turned him from being a self-sufficient freelancer with money to spare into someone who spent all his income as it came in (particularly on expensive books) and let his debts build up, over five years, to the point that he could not pay them off.

What brought issues to a resolution was his getting so frightened that he took his unopened pile of bills to the local Citizens Advice. “I said: ‘Would you open it for me?’ They did that for about six weeks. They wrote to my creditors.”

The killer debt was his unpaid income tax, but he also had outstanding utility bills and council tax. HM Revenue & Customs began bankruptcy proceedings and he was saved from that, in the day before the hearing, when his friends clubbed together to lend him the five-digit sum he needed to satisfy the tax debt. He paid back his friends shortly afterwards when he sold his house.

Nowadays, he lives simply on social security, including disability benefits. Receiving money weekly is far easier for him (a potential book spendaholic) to manage than getting it monthly or sporadically. He also pays his utilities in advance. And he is very relieved that he never took out a credit card.

He thinks that steps can be taken to spare others the anguish he went through. “Teaching schoolchildren to budget and manage their finances is one of the cleverest ideas I have heard of,” he says. For instance, he learnt late in life to go into supermarkets with a shopping list. “It makes an amazing difference. You spend far less.”

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

Survey of members of Institute of Credit Management reveals late payments still a major issue as Equifax reveals increase in use of credit data.

London, November 2011 – The latest survey of credit management professionals, conducted jointly by the Institute of Credit Management (ICM) and leading business information provider, Equifax, reveals a huge increase in the use of credit data compared to 2010, as businesses look to reduce their risk of bad debt. In the survey of ICM members, 86% said they use credit and business data checks for new customers and suppliers, compared to just 37% last year. And 85% use data for ongoing monitoring, but only 41% said the same a year ago.

In 2010, 59% reported an increase in late payments that year, but this is down slightly to 52% in 2011. Over a third (36%) are chasing late payments up to 3 days sooner than they were a year ago, up slightly on 2010. And 20% are chasing four days sooner, compared to 29% twelve months ago. Late payments remain a major issue for businesses, which accounts for the sharp increase in the use of data checks and ongoing monitoring, as firms keep a closer eye on new and existing customers and suppliers.

The survey shows that the current market conditions continue to put a strain on businesses, with 65% saying the Government should offer more support to protect small businesses from the negative impact of late payments. This is down on the 77% who said the same last year, but clearly shows a significant level of dissatisfaction.

Key findings of the survey show that the threat of redundancy has decreased. In 2010 63% of those surveyed said their company had made redundancies, but this figure has dropped to 44% in 2011. With a focus on credit management, these roles remain key for many businesses with 77% saying their department was not affected by redundancies, up 5% on the previous year.

“It’s interesting to see that the use of credit and business data checks has soared in the last 12 months, illustrating its value in managing risk and reducing bad debt,” says Mark Nuttall, Director, Equifax Commercial & SME. “The use of new customer checks and ongoing monitoring has more than doubled. And over half (50.5%) use data for verification when chasing debt, as firms continue to clamp down on late payments.

“Quality business and credit data is clearly more important than ever to businesses, as they struggle to operate in an uncertain economy. Ongoing monitoring and robust checks continue to offer the best protection from bad debt, helping companies continue to make informed business decisions and operate with confidence.”

Philip King, Chief Executive of the ICM, adds, “Late payments continue to put businesses under added strain, in an already fragile economy. The survey shows that businesses are struggling to tackle late payments and the majority would like Government support, but it is also up to professional credit managers, and specifically members of the ICM, to take the lead in reducing the impact of bad debt and improving levels of best practice.”

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

In the face of the current financial difficulties people are turning to the certainty of judgment information before making decisions, according to the latest quarterly statistics from Registry Trust.

Between July and September 2011, 23,774 searches were made on the England & Wales registers held by the Trust. This figure is 25.7 percent higher than in the third quarter of the previous year. Judgment information is used as a key indicator of creditworthiness.

Registry Trust is the non-profit organisation which operates the Register of Judgments, Orders and Fines for England and Wales in the public interest on behalf of the Ministry of Justice. The Trust collates similar information from all the other jurisdictions in the British Isles and Ireland. Public access is made easy through its website, www.trustonline.org.uk.

In response to its popularity, in September the Trust more than halved the cost to the public of searching its registers as a result of efficiency savings coming from a £1m investment in the website in 2010.

Registry Trust CEO Jon Hale said: “As a non-profit working in the public interest, we can share our efficiency gains with the public not with private shareholders. We aim to provide public information fast, efficiently and at low cost.

“In times of financial stress it makes sense to check on the judgment status of anyone you plan to transact with. We have made it simple and cheap so people can avoid the hassle and heartbreak which often result from dealing with the untrustworthy. Since the price halved demand has shot up further.”

The latest statistics show that the value of debt judgments faced by consumers in England and Wales during the third quarter of 2011 fell £61.5m (29 percent) when compared to the same period last year.

Last year the total value of all CCJs against consumers totalled £518.5m in Q3. This fell to £457m over Q3 2011 despite a 3.7 percent increase in the number of judgments year on year from 156,558 in Q3 2010 to 162,305 in Q3 2011.

Comparing this quarter with the second quarter of 2011, the statistics show a £32.2m (7.6 percent) increase in the value of CCJs, rising from £424.8 to £457m. There were 35,332 more judgments in Q3 2011 than in Q2 rising from 126,973 to 162,305, a 27.8 percent increase.

Announcing the statistics, Malcolm Hurlston, chairman of Registry Trust said: “Passing on our savings directly to our customers means we can empower consumers to make more informed financial decisions.

“The development of trustonline was intended to allow easy access to a valuable public resource. Now that the search prices have been reduced, judgment information can play an even greater role for more people.”

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

Calls for a special day to recognise the role played by small employers in the UK’s economy have intensified following new research showing that the smallest micro businesses are leading the way in tackling late payment.

The Forum of Private Business, Wanobe.com and The Business Woman’s Network have joined forces to campaign for a ‘micro business day’ dedicated to recognising the economic importance of UK firms employing fewer than 10 staff.

The campaign has gathered pace following new research from Experian covering the third quarter of 2011 which shows that, while average late payment time for all UK firms went up by almost one day, to 26.13 days, employers with one or two staff were able to limit the rise to just half a day – the smallest increase recorded during the period.

However, other micro businesses taking part in the survey were less successful. Those with between three and five employees saw average payments beyond agreed terms increase by more than a day to 23.01 days – with only medium-sized firms and large businesses in the 51–100, 101–500 and 500-plus employee categories faring worse.

In addition, Firms with 6–10 staff experienced average late payments of slightly less than one day.

“The jobs that will drive economic growth are expected to be created in micro businesses so it is important that we place the political spotlight squarely on them and make sure it stays there – that is why we are calling for a micro business day to highlight the crucial role played by the UK’s smaller businesses,” said Jane Bennett, Head of Campaigns at the Forum, which provides the secretariat to the All-party Parliamentary Micro Business Group.

“It is time for the Government to stop talking micro and thinking macro and instead focus on the real issues of the smallest businesses.

“Late payment is a huge issue, particularly for small businesses. While it is pleasing that the smallest micro businesses seem to be leading the way in minimising the problem, others are less able to do so – perhaps because employment law bureaucracy means they simply have less time to chase outstanding payments.”

David Noble, Managing Director of the online business knowledge market Wanobe.com said: “A major problem facing the UK’s micro businesses is how to chase money owed to them without upsetting a customer relationship – and possibly losing business as a result.

“It is dilemma micro businesses must solve every day and their creativity and perseverance in dealing with such issues, which enables them to survive and retain employees, is what makes them the real heroes in our marketplace.”

Mandie Holgate, of The Business Woman’ Network and a leading business coach, said: “Micro business owners aim to respect their suppliers and customers, appreciating the critical impact cash flow has on small businesses.

“They also aim to work in unison and aim to source locally, thereby supporting local economies and communities – a practice that could benefit from being copied on a larger scale, again showcasing the ways in which the micro businesses of the UK need to be turned to more and more as a resource for practical business solutions that work and will see us through these tough times.”

According to the Experian data, the North West of England is the worst region for late payment by far, with firms waiting an average of 36.72 days beyond their agreed terms.

Next is London (28.69 days), followed by Scotland (27.19 days), Yorkshire (26.65 days), the East of England (26.12 days), the East Midlands (25.72 days) and the West Midlands (25.50 days).

North East firms wait on average 24.42 days for payment beyond their agreed terms, followed by Wales (24.28 days), the South East (20.83 days), Northern Ireland (20.05) and the South West (18.18 days).

Sectors with the worst average payments made outside agreed terms are postal and telecommunications (46.62 days), leisure and hotels (35.91 days), food retailing (34.33 days).property (34.12 days) and textiles and clothing (30.50 days).

Industries with relatively better average late payment times include agriculture, forestry and fishing (12.27 days), oil (15.64 days), spirits, wine and tobacco (16.84 days), servicing and repairs (17.77 days) and insurance (19.78 days).

According to the payment body Bacs, small firms in the UK are owed approximately £24 billion in outstanding invoice payments.

The Forum is campaigning for better payment practices as part of its Get Britain Trading campaign. For more information call 0845 612 6266 or visit www.getbritaintrading.co.uk

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.