Businesses have become more lenient in chasing payments, according to a leading debt recovery firm.
Lovetts has found that businesses are waiting 16 days longer before issuing a Letter Before Action (LBA) – notification that legal action will be instigated unless outstanding debts are promptly paid – compared to 12 months ago.
Meanwhile, the total value of commercial debt has fallen by 28% in the last quarter of 2009 compared to the corresponding quarter a year before.
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
Charles Wilson, Lovetts chairman and MD
LBAs are proving effective in obtaining payment as the number of debts advancing to the legal-claim stage has dropped by just over 8%.
“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,” says Charles Wilson, chairman and managing director of Lovetts. “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.
“Of course the additional factor in this drop could be the simple fact that businesses during 2009 weren’t invoicing to the same monetary levels as 2008 and their debt has lowered as a consequence.
“Indeed it would appear businesses have become more relaxed about their debt levels with the average time from invoice to LBA increasing by over two weeks. Clearly 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 clients before they get serious with the threat of legal action.”
Wilson still believes, however, that businesses should be diligent in keeping bad debt to a minimum.
“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 therefore still extremely important for businesses to act swiftly on outstanding debt.”
