The number of businesses signing up to debtor protection has more than doubled in the last 12 months as worries over Brexit spiral, according to Optimum Finance.
The invoice finance firm has seen the number of clients seeking to protect themselves from debtors defaulting rise from just 30 to 65 per cent in the last year. Optimum Finance chief executive Richard Pepler said he is now regularly being asked by clients what they can do to mitigate the uncertainty of Brexit for their business.
This comes as government figures reveal the biggest economic slowdown in 2018 for six years due to a contraction of the economy in December. The latest figures for UK business investment show it fell for the fourth consecutive quarter for the first time since the economic downturn in 2009.
Debtor protection insures companies’ debtor books so if customers do not pay their invoices on time or stop trading, the insurer will cover the outstanding debt.
Pepler said, “This sharp rise in the number of companies taking out debtor insurance tells us everything we need to know about falling business confidence.
“Until we have some degree of certainty over what will happen beyond the end of March, businesses will remain very nervous. This highlights just how important it is that our politicians sort out the Brexit deadlock and get the best possible deal to get the UK economy back to full throttle.”
He acknowledged that businesses were sensible to protect themselves from future cash flow hiccups.
Pepler said, “It is particularly difficult for companies reliant on export, or indeed imports, to or from Europe since no-one yet knows how the border changes may affect the delivery or arrival of goods and components.
“Our best advice is to ensure you have everything possible in place to protect your cash flow from dips and delays in payments whether by having healthy cash reserves saved up or working with a lender you trust.”
This need to protect cash flow has also been reflected in the demand for Optimum Finance’s lending to SMEs which soared by more than 330 per cent to £60.9m in 2018. Even the usually quiet months of July and August saw a dramatic upswing in business with SME clients generating 10 per cent more income than in previous two months.
Pepler added, “We are a young and growing company so we would expect to see a fast growth in lending but this was off the scale.
“There is a definite increase in the number of companies setting up invoice finance facilities as another mode of insurance to keep their cash flow steady.”