A debt of £45K has been recovered from a discount retailer in just 7 days. The debtor sells well-known consumer brands at reduced prices in their West Yorkshire store. Economies of scale are achieved through buying in bulk direct from manufacturers and applying a lower markup than regular stores. To cover overheads and make the business viable, a higher quantity of inventory must be sold. A markup of 40% or more in retail provides a solid profit after overheads but this is unattainable for discount retail. The demand for discount retail has grown over the last 20 years with many local and national firms targeting the £1 price point. It is now a fiercely competitive multi-million-pound industry.
In the world of retail two things always sell – seasonal goods and confectionery. This is where our client comes into the picture. Trading for over three decades our client is a family run confectionery business based in Northumberland. A decision was taken early on to avoid the bland and soulless, machine lead production lines used by larger competitors. While some would view it as stunting growth, the business owners see it as keeping true to their chocolatier passion. Quirky handmade chocolate treats and nibbles have attracted an almost cult-like following through selling direct to consumers and more recently retailers. Seeing the rise of discount retailers, our client sought to diversify and created a sub-brand as their entry point to a new market.
Best Before Insolvency
Initial feedback from retail trials was overwhelmingly positive. The confectionary boxes were quickly snapped up by eager consumers. Having had an equally confidence-inspiring trial the West Yorkshire discount retailer engaged our client with a £25K order on terms of 30 days end of the month. The boxes of indulgent keenly priced confectionery were a success. A second-order was dispatched totalling £20K. Established industries have their own community, and some even have their own culture. People talk for the benefit of the whole industry and not just their own business. In that community, our client became aware of other businesses having difficulty obtaining payment from the same retailer. Our client’s own feedback was the debtor sought 2 months grace on payment. The grim reality was that carrying £45K could take this small confectionary business to the brink of insolvency. With £25K now 17 days overdue and £20K falling due in 7 days, Advocate Debt Recovery was instructed.
Spilling the Cocoa Beans
Using real-time credit reference data Advocate could see the debtor was themselves on the brink. The store was being weighed down by a decline in footfall and margins squeezed through absorbing higher supplier costs. A Notice of Insolvency Proceedings was issued for the £25K overdue and attention was drawn to a £20K invoice about to fall due. The debtor’s initial response was to blame cash flow issues and offer £500 as a full and final settlement. A ludicrously low settlement offer was never going to be considered, especially as it assumed our client had a 5,000% markup on the overdue! Staring down the barrel of insolvency proceedings full payment of the £25K and statutory late payment charges were received on day 5 of our action. The debtor was advised Advocate’s file would not be closed until the £20K invoice was also settled. This prompted payment as soon as it became overdue, resulting in a total of £45K being recovered. Having originally requested 2 months grace from the client, the debtor was miraculously able to make payment in a matter of days when approached by Advocate.
Since our file was closed the debtor has entered into a Company Voluntary Arrangement (CVA). Had Advocate not intervened the client would now be in line to receive a fraction of the amount originally owed. Coincidentally the first pay-outs are expected for when the grace period would have expired. In this case, Advocate was able to secure full payment before the CVA neutralised the threat of creditor action.