“The dam of zombie businesses could be about to break…
…Unmanageable levels of debts and subsequent overtrading are likely to be the hidden icebergs waiting to sink even the highest-profile businesses,” Julie Palmer, partner at Begbies Traynor.
‘Zombie Companies’, a phrase first coined in the 1990’s, describes companies that continue to operate through loans and in the case of Coronavirus – through extensive government support. Restricted trade due to the impact of Coronavirus, has seen many businesses rely on the lifeblood provided by the government to continue to operate – even if they are not otherwise viable.
Whilst lockdown restrictions have eased and return to work protocols are returning a semblance of normalcy, the reduction in government support is increasing business risk significantly. The Covid-19 loan programme has ended, the moratorium on landlords collecting rent ends in the summer, as does the government guarantee to backstop trade credit insurance and in the Autumn, the furlough scheme will end too.
All 22 sectors analysed by insolvency company Begbies Traynor were affected, with the likes of leisure and hospitality, logistics and transport worst affected.
Another issue faced in the UK, as described by the FSB, is the late payment epidemic affecting UK SMEs. Which is only likely to worsen in the short term due to the pressure many businesses face currently. Loan facilities and other temporary government support schemes keep the proverbial wolf from the door by providing much needed cashflow, but how many of those affected are taking further measures to alleviate the heightened risk of shuttering. Having to service debt is usually far more expensive than insuring against late or non-payment.
The £10 billion government support scheme for trade credit insurance, highlighted the benefits of insuring receivables – a major asset on almost every balance sheet. Both on a macro level, by providing more confidence in supply chains continuing to operate effectively and on a micro level; allowing businesses to trade with new and existing buyers more confidently, providing leverage against bad payment practices and in most instances – improving access to invoice finance and the terms attached to such facilities. Lastly, it provides vital protection against the risk of your buyers not being able to pay.
For as little as 0.25 pence to the pound cover is usually available for 90% of B2B receivables.
Whilst there are many other challenges facing businesses of all shapes and sizes, taking out invoice insurance is a simple step to a safer and more secure business. Most importantly securing you against unforeseen risks faced by your buyers.
We’d be delighted if you get an invoice insurance quote by clicking the link below. It’s a simple process and won’t take long.
Nic Gidaracos