Value of commercial debt increases 105% year on year

Published:  25 August, 2009

THANET: Quarter 2 2009 brought more financial pain for UK businesses struggling with debt, according to the latest report from Lovetts, one of the UK's leading debt recovery law firms. The total value of debt Lovetts is chasing through the courts on behalf of its clients rose a staggering 105.4% in quarter 2 2009 compared to the same period last year, with a quarterly increase of 42.4% vs Q1 2009.

The findings suggest that as orders for products and services have fallen in the recession, businesses are facing a delicate balancing act of securing payment as swiftly as possible. There is also a need for businesses to make efforts to remain on good terms with existing clients to ensure that their client base does not shrink any further than necessary. 

Lovetts has also seen a 38% year on year increase in the total value of debts being pursued by use of a Letter Before Action (LBAs), with the average debt value being pursued up almost 17%.(LBAs are used to secure payment, or to obtain a response from a customer before the commencement of a legal claim.)

However, the Q1 vs Q2 picture shows that while the total value of debts being pursued via LBAs has gone up by just 8.5%, the average debt has increased in value by 17.5%.

Charles Wilson, chairman and managing director of Lovetts says: "As cash flow has become a trickle if not a downright drought for many businesses, the volume of business debt has risen dramatically.  Claims through the courts are a last resort and yet we have seen a massive increase in the volume of debt being pursued. This clearly shows an increased focus on getting debts paid, which should encourage other businesses to take similar action. With business failures still on the rise, the willingness to chase late payments could be the cornerstone of their survival.

"The period between issuing an invoice and sending a letter before action actually increased from Q2 08 to Q2 09 by approximately 7 days. This would suggest that some businesses are becoming reluctant to use LBAs too early for fear of damaging customer relationships at such an economically sensitive time. It may also suggest that some debtors are disputing invoices on receipt in a bid to control cash-flow and delay payment.  It may also point to the likelihood that bigger debts are being chased with a smaller number of debtors.  Clearly businesses need to find the right balance between keeping customers happy and knowing when enough is enough."

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