Advocate Debt Recovery has recovered £4K in just 48 hours on behalf of a Hertfordshire based commercial cleaning company still in its maiden year of trading. With approximately 20% of all start-ups failing in the first year (60% by the third), the importance of cash flow cannot be emphasised enough. A wealth of previous experience is no guarantee of success. Many businesses have been profitable but ceased trading simply because money flows out faster than it comes in. Our client has established a loyal customer following, reinforced with the transparency of not hiding the new incorporation under a decade of experience.
The debtor is based in North London. They manufacturer window and door frames to order for trade and retail. Incorporated over 15 years ago they are well established. Financial statements from 2 years ago indicate a profit figure more than twice our client’s expected turnover in the first year of trading. The debtor has an ongoing requirement for monthly deep cleans and engaged our client for this purpose. The first deep clean received praise, but ahead of the third, our client had still not been paid for the previous two. They received reassurance and promises of payment to secure a third clean which was swiftly invoiced. In protest of non-payment and in the hope of leveraging payment, service was withdrawn. Our client was met with a wall of silence, even after pointing out the contractual breach. On returning to the site and collecting equipment it appeared another cleaning company was using the client’s inventory. Having paid labour and materials, our client was now in a £4K hole they had not foreseen. The benefit of hindsight, perhaps. In reality, you can’t expect customers to pay a fledgling business upfront when it hasn’t even picked up a J-cloth yet.
In need of a quick no-cost solution, the client turned to Advocate. There were no grounds to raise a dispute because the cleans had all been signed off. The lack of payment made no sense. With access to real-time credit reference data, Advocate was able to shed light on why payment was not forthcoming. Analysis of the most recent set of accounts showed a trading loss twice the size of the previous year’s profit. For the same period, cash in the bank was unusually high. In profitable years gone by cash was no more than 0.7% of turnover but for the most recent period, it was 7%. Trade Payment Data indicated 95% of invoices were paid at more than 30 days overdue. Over 50% of invoices were paid 60-90 days beyond terms. In the absence of being privy to internal board discussions, you could surmise they are stockpiling cash to prioritise key suppliers over disposable vendors.
Our client was now in urgent need of the £4K having carried labour and inventory costs for several months. Time was true of the essence. Given the debtor’s poor credit rating and the adverse financial data, we identified, issuing a Notice of Insolvency Proceedings was the most appropriate course of action. It would also warn the debtor other vulnerable creditors could take the same action with the backing of a firm like Advocate. It took just 48 hours from the client’s first conversation with Advocate to issue the debtor with notice and to receive payment in full. The debt was undisputed, as too the statutory late payment charges which were received in parallel with the £4K. Our client’s invoices were paid 30-60 days overdue. Trade Payment Data indicated payment this early happens to less than a third of invoices the debtor receives. Paying the debt in full when faced with insolvency proceedings supports the premise of cash stockpiling. It also shows how quickly our client became a priority creditor once Advocate Debt Recovery intervened.