Where are you in the queue for payment when a business goes bump?

New legislation from 6th April 2020 will make it harder for businesses to collect payment from companies that have gone into insolvency. 

Currently, in a hierarchy established by the Insolvency Act 1986, secured creditors get priority for payment with unsecured creditors coming in second place. Examples of unsecured creditors are employees and banks. Each of these tiers must be paid in full before the next tier can be paid.

However, from 6^th April this year, new legislation will mean that HMRC will move to Tier 2 – so payment of any tax owing is payable as a priority. This could be problematic for a business when their customer has gone into insolvency with invoices unpaid, as chances of them receiving full payment will decrease significantly as they will be further down the queue when insolvency practitioners look to divvy up payments.

With predictions that UK insolvencies will increase this year by 8%, it is vital that businesses are keeping a close eye on overdue payments and the stability of their customers.

The best advice to avoid losing out is to act quickly – the longer an invoice goes unpaid, the less likely you are to recover it. Think about outsourcing to a reputable b2b debt recovery agency as soon as something goes beyond terms. This has two standout benefits – firstly, your invoice will be as near the top of the queue as it can be should the business go into insolvency and secondly, with a  professional DCA collecting past due invoices, your credit control department can refocus on getting invoices out sooner and making sure that they get paid on time (to read how you can do this, read our blog here).

Another consideration is to use a credit information portal which will enable you to spot a business that is struggling. This will flag any telltale signs that a business might be on the brink. identeco’s Business Support Toolkit even provides a facility whereby you will be notified by email should one of your customers show signs of distress.

If you are struggling to recover unpaid invoices or need some advice regarding commercial debt recovery, arrange a chat with our advisors here or call 01527 549 522