1 in 4 corporate insolvencies triggered by late payment

Published on September 20, 2016 by Crawfords Accounting

Nearly a quarter of corporate insolvencies in the past 12 months were caused by late payment by customers, according to figures from R3, while one in five were triggered by the failure of a key supplier or customer.

The organisation, which represents the business recovery industry, found 20% of corporate insolvencies were caused by a failure in the neighbouring supply chain, and 23% by late payment of invoices.

R3 president Andrew Tate said: “A business can have a great product and great staff, but if it doesn’t get paid for what it sells, or if it is over-reliant on one supplier or customer, things can go wrong very quickly.

“On the surface, late payment or the failure of another company can seem like factors outside a business’s control, but there are plenty of steps a business can take to reduce the risks posed by its supply chain and customer base.”

For example, he told businesses not to be complacent about background-checking who they work with, keeping a close eye on invoices and recognising that carrying out work before getting paid essentially makes you an unsecured lender.

The figures represent only a very slight improvement over the position in 2014, when 20% of corporate insolvencies could be linked with late payment.

Construction industry customers remain the worst offenders, with 57% of those surveyed by R3 citing the sector as the least reliable when paying on time – down only slightly from 59% in 2014.

This corresponds with a fairly high number of business insolvencies in the construction sector, raising the question of whether poor payment practices are a cause or an effect of so many construction companies being in peril.

Mr Tate added: “Late payment problems and relatively high insolvency rates are not a coincidence. If the sector could diminish the extent of this issue it would see an improvement in its business survival rate.”

  • LinkedIn
  • Instagram