Businesses are advised to take out credit insurance to protect capital

Suppliers into the hospitality industry are being warned to be cautious as a wave of insolvencies are expected in the sector.

Recent research from the Office of National Statistics revealed a shock drop in hospitality output contributed to a 0.5 per cent decrease in the country’s gross domestic product in Q4 last year.

The adverse weather conditions in December, along with the VAT rise, increasing costs for food and fuel and comparatively low alcohol and food prices in supermarkets are being blamed for the poor trading conditions.

The culmination of these factors means it is essential hospitality suppliers and wholesalers are aware of the risks of bad debt and pay strict attention to late invoices, as customer insolvency can have a knock-on effect on cash flow.

To help ensure the current downturn in the hospitality sector doesn’t negatively impact your company’s cash flow, Martin Walmsley, head of debtor insurance at Lloyds TSB Commercial Finance, has put together the following tips for suppliers and wholesalers:

1. Spread your sales ledger Suppliers in the hospitality sector often rely on a couple of large customer relationships. This can prove crucial should one of them file for insolvency. It is advisable to spread your sales ledger across a wide client base to minimise this risk

2. Step up customer service For many hotels and restaurants, cutting costs to lure back customers is no longer an option as the recession saw prices lowered to the limit. Therefore many management teams are likely to start shopping around for the best deal. It is important to place special emphasis on service to ensure your customers are happy

3. Go green Switching to bio-fuels and reducing your packaging will save your company money and these savings can then be passed on to your customers, strengthening relationships. This is also a great selling point when looking for new business

4. Boost cash flow Any opportunities in the sector should be capitalised on and it is vital you have funds available to do so. An invoice finance facility is ideal as it releases the value of a firm’s sales ledger before payment is received

5. Insure your invoices if you are concerned about bad debt, it makes good business sense to insure your issued invoices. Debtor insurance supplied by Lloyds TSB Commercial Finance covers up to 90 per cent of any bad debt suffered as a result of customer insolvency