Three predictions for bad debt recovery in 2021

Nearly a year into the pandemic, and many months of remote working later, we’re starting to see a chink of light on the horizon as the UK navigates its way out of lockdown. If we thought that 2020 was a challenging year, then 2021 is likely to be more of the same, as we struggle with the effects of the stop-start nature of the economy.

Over the last couple of weeks, research from the Institute of Public Policy Research revealed that an estimated 600,000 employers are at potential risk of bankruptcy without further financial support. Around 900,000 small businesses are also in danger of failing by early April according to the London School of Economics. 

Whilst insolvencies are down overall, they’re predicted to rise by 40% in 2022, compared to the 20 year rolling average.

It’s feared that once business support schemes end – which is inevitable at some point – the rug will be pulled out from many businesses and trigger a wave of closures and job cuts. The furlough scheme has just been extended once again to 30th September 2021, but at an estimated cost to the Treasury of £50 billion so far, to what extent are we prolonging the inevitable? 

Escalate Co-founder Nick Harvey recently took part in a webinar with our partner firms Capitalise and Bishop Fleming, to discuss all things insolvency and bad debt related, as well as their predictions for 2021.

1. “This is the calm before the storm for SMEs”

Mortgage and rent holidays have created a false reality, and wrapped a comfort blanket around SMEs. As support schemes such as furlough keep getting extended, this simply kicks the can down the road – something I wrote about as early as May last year. 

However, there is a train coming down that track that will affect SMEs. For accountants, this means that there is an opportunity to step in and help SMEs to get their head out of the sand; working out ways to cut wastage and get themselves in the best possible position. Being resilient is key.

2. “Real estate lawyers will be very busy”

The rise of flexible working has forever changed the demand for office space – the genie is well and truly out of the bottle as businesses have seen how effective home working can be.

Companies will be looking to reduce office space and serve break clauses, and you’ve also got tenants with rent arrears. It remains to be seen how landlords will fill that space and ensure that any new tenants have the means to pay. Landlords may be faced with a choice of an un-let empty property, or working with the existing tenant to accommodate them.

3. “Speed of action will give SMEs a head start in the creditor queue”

In terms of debt recovery and litigation, the recent legislation changes have given serial debtors a platform to exploit the situation. Whilst insolvency courts are closed for winding up petitions at the moment, courts are still very much open for business with regards to charging orders and court judgements.

If anything, courts have become more efficient in some respects, thanks to Zoom hearings and online mediations, thus negating the need for travelling to and from court.

Those who start the process now will be at the front of the creditor queue, which is far better than being further down the line when cashflow pressures inevitably become even tighter. Another point to note is the importance of establishing pre-existing debt vs debt that was incurred as a result of Covid, which is something that courts will be factoring into their thinking. 

What you can do now to start debt recovery proceedings:

• As a first step, our must-read guide to dealing with late payments and bad debt will give you a plan of action. 

• Do put payment plans in place, and get them documented that the other party admits the debt.

• Contact Escalate to find out how we can help.

And what not to do…

• Don’t think that nothing can be done about a bad debt – a sense of inertia is dangerous right now.
• Don’t put off a conversation about cashflow problems. Early intervention is key here – as our partners at Bishop Fleming know too well. A lot of insolvency related matters that land on their desk at the twelfth hour are often too far gone to resolve. Having the conversation earlier can make the difference between the success or failure of a business.

The power of using Escalate for bad debt recovery is that we are a fully funded and insured solution, with adverse costs protection included, and there’s nothing to pay unless we make a successful recovery.

The vast majority of cases we deal with are resolved through mediation before even going to court – but having the financial muscle to take it all the way through the legal system is an extremely powerful message. It also gives our clients an immediate advantage, especially when the opposition is faced with paying their lawyers’ hourly fees.

Escalate is successfully unlocking nearly £100 million of cash for our clients’ businesses – proof indeed that Escalate is making a valuable difference to SMEs across the country.