Better The Debtor You Know

A recent press release from the insolvency trade body, R3, (click here) has identified that more than 20% of UK corporate insolvencies in the last 12 months have been caused by debtor default or late payment.

That means that a significant number of corporate insolvencies have been caused by matters that are outwith the control of the directors of that company – or does it?

When a supplier gives credit to a customer, the supplier is, in effect, making a loan to that customer. It is in the interests of the supplier to give that "loan" to encourage customers to transact and to increase the turnover (and hopefully the profit) of the supplier.

The giving of credit necessarily exposes the "lender" to the risk of default by the customer, most notably of course upon the insolvency of the customer.