Experts at the financial outsourcing group, Oriel, have expressed concerns over the potential for increased business insolvencies in 2010 as a result of tighter rules on deferred tax payments, and poor credit management amongst businesses.
Online PR News – 04-May-2010 – – In 2009, with the UK economy seeing one of the worst recessions in history, the government took action designed to help save struggling businesses from failure. In an effort to reduce the impact of the problems facing the economy the government introduced the time to pay scheme (TTP).
TTP allowed businesses to defer PAYE, VAT and National Insurance for up to six months. The scheme was designed to allow businesses a period of time to accommodate cash flow pressures and get order books back on track. Since inception the scheme has enabled over 242,000 companies to defer £4.2 billion in tax payments.
The TTP schemes have allowed businesses to soldier on and try to survive. However, this may not have been the best option for some businesses who continue to struggle out of the recession.
Group Sales & Marketing Director at Oriel Group, Trevor Deacon, believes that “the introduction of the scheme has potentially just delayed the high level of insolvencies that we had been expecting and that potential problems will arise in 2010 as a result. The trouble with the TTP scheme is that it has been, historically, relatively easy for companies to defer their debt and enter the scheme”.
Furthermore, with early signs of economic recovery the HMRC has hardened its stance on the TTP scheme and have become more forceful when receiving requests for assistance. Companies who have participated in the TTP scheme may now find themselves being pressed harder by HMRC to pay back quicker where previously the system has been less stringent.
On 6th April 2010 the HMRC introduced an independent viability review to ensure no businesses join the scheme unless they can show the potential to afford the repayments. If the business is unable to meet the new tighter regulations to enter into the scheme then it means the business is a high risk company and may result in early insolvency.
The most dangerous time during a recession for many businesses is the recovery stage when confidence begins to rise, many businesses become stretched by the increased working capital demands for the growing business and potentially take on more financial risks to try to expand sales.
Trevor Deacon comments, “Whilst we should all embrace the possible signs of recovery we should continue to be mindful of the customers we trade with and ensure effective credit management of overdue receivables”.
Businesses should look internally at their systems and review their credit management and collections cycle to ensure that all debts are potentially collectable and debtor risks are mitigated by effective credit management. It is also important to give consideration to outsourcing to a debt collections agency after 90 days as part of an effective and streamlined credit management policy.
More information is available at http://www.orielgroup.co.uk/Collections.