Act swiftly on outstanding debt.

Business debt drops 28%

Published:  04 February, 2010

UK: With news that the country is officially out of recession, the latest figures on commercial debt from Lovetts, a major debt recovery law firm, reveals a fall of 28% in the value of commercial debt being experienced by its customers in Q4 2009, compared to Q4 2008.

While the actual number of individual debts chased for payment through a Letter Before Action (LBA) in the fourth quarter of 2009 compared to the same quarter in 2008 fell marginally (-2.54%), the total value these debts amount to dropped by 27.58% year-on-year. LBAs are used to secure payment, or to obtain a response from a customer before the commencement of a legal claim.

Furthermore, LBAs are proving effective in obtaining payment as the number of debts going on to the legal claim stage has dropped by just over 8% according to Lovetts’ figures.

Businesses have also become more lenient in chasing outstanding payments. The amount of time businesses are waiting before instructing an LBA to be issued has increased by around 16 days compared to the same period in 2008.

Charles Wilson, chairman and managing director of Lovetts said: “The dramatic year-on-year decrease in the value of debts we are chasing on behalf of our clients just goes to show how hard the recession was being felt by businesses at the end of 2008.

"It was definitely a case of ‘can’t pay, won’t pay’ as businesses were panicked into holding onto their cash for as long as possible, therefore putting off paying debts, while also chasing up debts owed to them much sooner.

"The additional factor in this drop could be that businesses during 2009 weren’t invoicing to the same monetary levels as 2008 and, as a result, their debt has lowered.

“Businesses have become more relaxed about their debt levels with the average time from invoice to LBA increasing by over two weeks. Maintaining good customer relationships is vital in this climate and that will have a huge part to play in how much rope businesses are willing to give their customers before they get serious with the threat of legal action.

“The fact is lower debt is a better basis on which to build a business coming out of recession, but we’re not out of the woods yet. It is still extremely important for businesses to act swiftly on outstanding debt,” Mr Wilson stated.

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