Credit Management December 2022

RISING TIDE OF INSOLVENCIES
With inflation rising and ongoing
uncertainty surrounding trading
conditions, the challenges facing
businesses are expected to continue
through 2023. The hike in energy
costs, due next April, could be a
pivotal moment for some businesses.
A survey conducted recently by the
Office for National Statistics (ONS)
found that:
UK businesses reported being at a
‘moderate-to-severe’ risk of insolvency,
with rising energy costs cited as a major
factor.
Smaller firms with fewer than 50
employees were among those most
likely to report being at risk.
Bethan Evans, business recovery
partner at Menzies LLP, said:
Corporate insolvencies in
England and Wales rose to a
record level in Q2 and some
businesses are seeking advice
about entering an insolvency
process now, because they know
that cost and staffing pressures,
as well as market uncertainty,
are not going away. They are
already on the brink and the rise
in the energy price cap next April
could push them over the edge.
For in-house credit management
teams, reading customer behaviour
and spotting red flags is increasingly
important. Some businesses are still
working through customer issues
caused by the pandemic restrictions.
In some cases, contracts have been
successfully re-negotiated or ‘Covid
credits’ issued. However, in other
instances, demands for payment and
legal action for breach of contract
have proved unavoidable. Overall,
there is a willingness to be flexible
but, with more customers favouring
short-term contracts and seeking
greater control over when and how
they make their payments, credit
managers are feeling the strain.
Sue Chapple commented: “It has
never been more important for
businesses to know their customers
and understand the pressures
and risks they are facing. Through
effective communication, credit
management professionals can help
to build a more complete picture.”
MORE FOCUS ON SUPPLY-SIDE
RISKS
Customer risk isn’t the only source
of financial risk requiring senior-level
attention. Companies understand
the importance of underwriting
customer credit risk, but a growing
number are now seeking advice
about how to mitigate supply-side
risks too. “Communication is vital,
as businesses need to understand
where external risks lie and how
to identify them. They also need
accurate data about where risks
might arise in the future, so they are
better informed,” commented Craig
Evans.
Simon Philpin, head of trade credit
at credit assurance provider, Markel,
added: “We have seen increased
demand for credit assurance
linked to suppliers. Unfortunately,
businesses in some sectors have
been experiencing defaults or delays,
which can be highly disruptive and
financially damaging.”
“Fraud is another major risk factor for
businesses across industry sectors.
Sometimes it is linked to the activities
of financiers, such as invoice
discounters, and we are advising
businesses to be particularly cautious
when auditing their suppliers and
customers. Fraud linked to the
misuse of Government-backed loans
is also widespread.”
FORTUNE FAVOURS THE AGILE
Despite the many challenges
that businesses and their credit
management teams are facing on
a day-to-day basis, there will also
be commercial opportunities in the
year ahead. As some businesses
demonstrated during the pandemic,
those that are quick to diversify
to meet new or growing areas
of demand could reap rewards.
According to Bethan Cooke, senior
lawyer at Admiral Money: “While
risk understanding is important,
businesses should also be thinking
about how they might expand
products or service lines in the year
ahead. In particular, digitisation can
deliver better quality data about
customer journeys to support crossselling
or other revenue-generating
initiatives.”
Even in the midst of a ‘profound
economic crisis’, some businesses
will succeed in growing their market
share or expanding into new
markets. Craig Evans added: “In the
2008/09 recession, we worked with
a construction business that took on
more risk and increased its market
share as a result. Now they are back
and looking to do the same thing
again. As long as they can quantify
the risk they are taking on and don’t
over-stretch, it could be another case
of ‘fortune favours the bold’.”
This report is based on
a roundtable event for
employers and credit
management professionals,
chaired by the CICM and
hosted by accountancy firm,
Menzies LLP.
Menzies LLP’s Creditor
Services team offers
complimentary support and
advice to credit managers and
businesses of all sizes, across
industry sectors. Where
possible, the firm’s experts
provide practical solutions for
improving cash management
and operational resilience and
early engagement is key to
improving outcomes.
For further information on
our complimentary creditor
services offering, please get in
touch.
BETHAN EVANS
PARTNER
bevans@menzies.co.uk
+44 (0)29 2044 7512
GIUSEPPE PARLA
DIRECTOR
gparla@menzies.co.uk
+44 (0)20 7465 1919
Brave | Curious | Resilient / www.cicm.com / December 2022 / PAGE 27