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Don't be left high and dry if your cash flow recedes

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The Ministry of Justice’s latest stats for the final quarter of 2018 make for interesting reading.

The number of County Court claim forms driven by specified money claims issued were 533,000, a 42% increase on the same period in 2017. 

This is a dramatic increase and one that can be explained, in part, by the initial drop in volumes due to the introduction in October 2017 of debt pre-action protocol (PAP), which are the series of steps taken to bring a claim to court on individual debtors/consumer debt. However, if you disregard the PAP figures, the number of claims still rose by 10% in the last quarter.

So how to account for this increase in the number of claims issued?

One explanation for the rise is that businesses are choosing to focus on reducing their Days Sales Outstanding (DSO), which makes sense in light of the UK’s current political and economic instability, caused by the ongoing Brexit crisis. Given the present foggy national outlook, you may also be concerned about your own DSO, so why not review how you compare to other businesses in your sector with our DSO comparison tool.

On top of this, despite sales figures remaining buoyant and some businesses still booming, it would appear that consumers are choosing to hold onto their cash and tighten their belts. In such an economic environment it would be wrong to neglect one of the most important parts of the business – credit control.

The importance of cash flow

Cash flow is still the life blood of any business. No one wants to seek redress through the courts; however, you have to consider that your customer will usually have other creditors chasing them and you don’t want to be the last in line to get paid.

If your debtor is clearly struggling, and unable to pay debts when they become due, you may want to consider issuing a Winding Up (company) or Bankruptcy Petition (individual). The County Court process can be a long-winded tedious affair. Even when you are successful in entering judgment, the hard part of enforcement may be yet to come.

If your debt is undisputed and your customers only issue is cash flow, then a Winding Up or Bankruptcy Petition tends to focus their mind and prioritise you ahead of other creditors and is an option worth considering.

If you have any questions about issuing a Winding Up or Bankruptcy Petition or would like to discuss improving your cash flow, please contact our Debt Recovery Team.

Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.