gordons llp cash flows

Credit Control: Are You Ready to Secure Your Cash Flow?

Thursday 13th October 2022

As the government attempts to control inflation and interest rates, finance departments and in-house legal teams are working behind the scenes to ensure their company’s credit control functions are fit for purpose, they have sufficient cash flow and are not overly exposed to external market forces.

We have seen an increase in requests over the last month to assist businesses which extend credit, particularly to other businesses.

What is the market telling us?

The stories are similar. They are starting to see good customers not paying or insisting on extended credit terms. Alternatively, unwarranted issues are being raised to try and delay payment. Others have faced customers entering into insolvency arrangements and are looking to call upon retention of title provisions to recover their goods.

This isn’t surprising given market conditions and is reflected in bank borrowing trends which are always a good indicator. Over the last 12 months, SME’s have been paying back more than they have borrowed. However, the Bank of England’s latest statistics (August 2022) show that net repayments are at zero, and the availability of bank credit has reduced dramatically since the height of the pandemic.

What’s the best way to prepare?

Whilst we’re advising on specific issues, we’re also working with clients at a strategic level to improve the prospect of being paid should they find themselves with bad debt. This cradle-to-grave approach includes reviewing and introducing new terms and conditions, training on entering proper contractual arrangements, KYC and advising on the enforcement steps that can be taken if they are not paid.

Government financial support during the pandemic meant that most creditors did not experience the true pressures of multiple customers not paying. The pandemic was a unique event. If market conditions deteriorate, businesses will instead call upon the lessons learnt following the 2007-08 banking crisis. During the economic boom that followed that recession, many dropped the good practices that were put in place, as credit was extended in a buoyant economy. It’s now the time to think again.

If you have any questions regarding this topic, please contact a member of our in-house and general counsel team today.