As the economy finally appears to be moving to a state of recovery there are still concerns for a large number of SMEs who are teetering on the edge of survival. Increased business confidence should enable these businesses to take advantage of an upturn in their markets, offering them the opportunities for the growth they have been crying out for. But for some businesses who have been struggling for the last few years it may not be that simple.
The term ‘zombie’ businesses has been circulating for some time now, referring to businesses that are managing to survive by barely servicing their debts, taking advantage of low interest rates and the patience of their creditors. Whilst there may be growth opportunities there for these businesses, poor cash flow and a lack of working capital may restrain their ability to fulfil orders as the markets improve.
Historically, the number of insolvencies has tended to increase as the economy improves, interest rates rise and creditors start to apply pressure. These ‘zombies’ are most at risk of failure and will have a knock on effect to other businesses in the supply chain if they become insolvent.
So what can you do to protect your business should one of your customers turn out to be a ‘zombie’ and fails? You can never know your customer well enough. Credit checking your customers on a regular basis can mean the difference between getting paid or being left with a bad debt. If you have carried out a credit check and set a credit limit, stick to it. We often see creditors in the liquidations we deal with who are owed many times the credit limit they had set. Review your terms and conditions to ensure that you are trading on your terms and not your customers. Consider incorporating a Retention of Title clause in your terms and conditions to give you the opportunity to recover your goods should your customer not pay. Of course, on paper this sounds simple but in practice it takes some effort to get it right, keep doing it right.
If your business is ‘zombie’ it is never too late to take professional advice to start the process of turning the business round. Of course, the sooner you take advice, the better as there will be more options available to you. Engaging an Insolvency Practitioner or Business Recovery professional is not a negative move, as first and foremost, if there is a viable business to be saved a good Practitioner will explore every avenue to ensure the business continues to trade, looking for the best possible outcome for all involved.
For further information please contact Christopher Brown, Business Recovery & Insolvency Partner at Hart Shaw on T: 0114 251 8850 or email: chris.brown@hartshaw.co.uk.
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