More than 100,000 businesses were owed money by insolvent companies or customers in 2015, according to figures released by the insolvency specialists, R3.

Medium-sized businesses were among those most at risk. One in seven of them were owed money by an insolvent individual or company.

The president of R3, Richards Sykes, said: “Growing businesses encounter two classic problems: going for growth by taking on new customers without properly checking their creditworthiness; and a lack of controls to monitor their exposure.

“This leaves growing businesses, particularly medium-sized ones, as the most at risk of being exposed to others’ insolvencies.

“Businesses need to be savvy about who they trade with. If a business isn’t paid up-front or on delivery, or pays in advance for its own supplies, it is essentially lending money to those with whom it is trading. This sort of ‘lending’ doesn’t have the same protection in insolvency situations that secured lending, like a mortgage, enjoys.

“Debts are repaid in insolvencies according to a strict hierarchy set out by the government. Secured loans are at the top of the hierarchy, while those with unsecured loans, like trade creditors, are towards the bottom.”

Businesses can help to protect themselves against bad debts with potentially insolvent companies by keeping a tight control on credit and ensuring that unpaid invoices are chased up promptly before matters get out of hand.

A solicitor’s letter is often enough to ensure payment in the early stages. If not, there are several other legal channels that can be pursued, up to and including court action.

Please contact us if you would like more information about the issues raised in this article or any aspect of credit control and debt collection at dispute@berrysmith.com or 02920 345511