Businesses are advised to take out credit insurance to protect capital

Recent research from Lloyds TSB has revealed 30 per cent of businesses in the UK have reported suffering from cash flow problems, with 60 per cent citing late payments as the main cause.

Polling approximately 1,800 companies, the majority of which have a turnover of less than £15 million, the bank’s bi-annual ‘Business in Britain’ research surveyed business’ performances in the second half of 2010.

The number of companies affected by late payments has only decreased slightly since the bank’s last survey published in August, when 64 per cent of firms citied late payments as a cause of cash flow problems.

This shows that, despite the steadily improving economy, many businesses are still seeing bad debt impacting on their growth plans.

Lloyds TSB Commercial Finance, the invoice finance division of the bank, says that the number of firms affected by clients unable to pay bills on time is likely to rise as economic recovery slows down, particularly in light of the recent VAT increase.

Martin Walmsley, head of debtor insurance at Lloyds TSB Commercial Finance, said: “The latest results are an improvement on last summer’s survey, albeit only by four per cent.

“However, three fifths of firms are still citing late payments as a main cause of cash flow problems. This is a substantial number which demonstrates why management teams should not get complacent about any overdue payments.

“January is often the toughest month of the year for companies’ liquidity as invoices from the Christmas period are still outstanding and this year the VAT increase has affected many businesses’ sales margins. Therefore it is vital firms take all precautions available to protect their cash flow.

“Credit insurance, like the debtor insurance policy supplied by Lloyds TSB Commercial Finance, is ideal for companies worried about late payments as it ensures a business is safeguarded against 90 per cent of bad debt.”