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The Perfect Storm: Interest Rates, Inflation & High Debtor Days To Increase UK Corporate Insolvencies

The Perfect Storm: Interest Rates, Inflation & High Debtor Days To Increase UK Corporate Insolvencies

UK businesses continue to patiently wait for a change in the economic climate as pressure continues to mount – particularly on top of SMEs (small and medium-sized enterprises). The domino effect caused by rising insolvencies is that late payments also become a frequent threat. 

Compulsory company liquidation rates have doubled year-on-year, further highlighting that this issue is not just a flash-in-the-pan occurrence. Post-covid, government support has significantly receded following the costly furlough and CBIL schemes (Coronavirus Business Interruption Loan). With this in mind, is it time for technology to step in and tackle the threat of late payments?

The lay of the land 

Right now, UK businesses are struggling across multiple financial fronts. There isn’t just one threat facing them – such as soaring energy bills, for example – instead, there are a plethora of economic threats impacting the livelihoods of so many businesses across the country. Interest rates affecting the cost of credit, inflation eating into profit margins and energy bills affecting supply chain costs – it’s tough out there right now. 

Ideal conditions for late payment culture 

Although late payments are far from a new phenomenon – the current economic climate has allowed late payments to thrive and become a feature of business operations. Failing to pay a business on time is rapidly becoming the biggest risk to their survival.

Declining to pay a business – particularly SMEs – within the agreed 30-day period often inflicts lasting damage onto cash flow and affects their ability to trade properly. Adopting an attitude of strict on-time payment habits is more easily achieved by implementing an end-to-end credit management process. 

According to The Insolvency Service’s latest figures:

  • There were 2,181 CVLs, which is 38% higher than in May 2022;
  • 189 were compulsory liquidations, which is 34% higher than May 2022;
  • 31 were CVAs, which is 121% higher than May 2022;
  • There were 151 administrations, which is 80% higher than May 2022;

Tech to the rescue

Despite the lack of support arriving from central government, business leaders can embrace the latest technologies to help protect themselves from external financial pressures. The latest advancements in cloud technology offer powerful and affordable credit management solutions for businesses. Tools such as these used to be exclusively available to deep-pocketed big businesses. But today, these solutions are affordable to the SME community too. 

Technology levelling the financial playing field for SMEs is a huge step forward for the UK business community. If SMEs were unable to access secure cash flow solutions in harsh economic conditions such as now, then it is likely that many of them will have to cease operations for good. In short, end-to-end credit management solutions which enable SMEs to reduce debtor days and combat late payments are a huge win for the economy. 

Difficult time for investment: Is it worth it?

Right now, business survival is paramount for SMEs. The notion of investing and overhauling processes such as credit management may seem costly and less of a priority compared to other areas. But zoom out and business leaders will see how automation can secure the future of a business. 

Businesses neglecting its credit control process and relying on often time-consuming and human-error-hindered manual processes which leaves business cash flow vulnerable. Investing into a securely automated credit control solution will pay dividends to any SME in the long run. Having the ability to view and collect overdue payments from one place will bolster cash flow at a critical time for SMEs. 

Proactive instead of reactive 

With no end in sight to the ongoing economic turmoil, business leaders need to take a proactive approach to protecting themselves against external threats. Unfortunately, combatting the likes of rising interests and inflation is firmly out of the hands of businesses – especially SMEs.  

Late payments continue to hinder business continuity. Adopting an automated, end-to-end credit management platform will equip struggling businesses with the power to check, chase and collect payments they may be owed from one place. It is very possible that technology emerges as the unlikely hero to guide UK businesses out of the economic tunnel they continue to find themselves in.   

This article was first published by Financial IT.

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