The Department for Business & Trade have released the latest statistics for September 2023, but what does this mean for you and your business? We discuss below the Turnover Forecast for October, the Turnover Trend and Future Price Increases. We also provide our advice on how to keep yourself protected from increased rates of insolvency and minimise the risk of bad debt.

1. Turnover Forecast:

• October Expectations – In October 15% of currently trading businesses anticipate an increase in turnover, whilst 17.3% expect their turnover to decrease. The majority (57%) of trading businesses however, are expecting their turnover to stay the same for the month of October.
• September Comparison – The turnover forecast for October is quite similar to that of September, where 55% of trading businesses expected their turnover to stay the same, and 18% expected an increase.

2. Turnover Trends:

• August 2023 – In August 2023, 23.6% of trading construction businesses reported lower turnover compared to July 2023 while 56.1% reported no change in their turnover and 14.3% of currently trading businesses saw an increase in turnover.
• July Comparison – Notably, in July 17% of trading businesses reported their turnover was higher in comparison to June 2023. This is a 3% decrease in trading businesses reporting an increase in turnover in comparison to July, it is also important to note that July saw the first increase in companies reporting an increased turnover since March 2023.

3. Future Price Increases:

October Pricing Expectations – Price increases remain steady as this October, 16% of construction companies are expecting to increase their prices. This was the same proportion of construction businesses increasing their prices for September 2023.

The majority of construction companies, (58.7%) are expecting their current prices to remain the same for this October and 2.5% of construction companies are expecting their prices to decrease.

What does this mean for your business?

In Summary, at this current time the figures above show that many companies are expecting a steady turnover and pricing for October has remained consistent, this could indicate a level of stability within the industry. However, the 17.3% of trading businesses still anticipating a decrease in turnover in combination with a decline in trading businesses reporting an increased turnover in

August in comparison to July, displays that there is still a degree of uncertainty and for this reason it is crucial to remain vigilant and adaptable in your business plan, to do this we recommend the following

Enhancing Your Credit Management Strategy:

Evaluate and Elevate: Elevate your business’s financial health by conducting a thorough review of your credit management practices. This strategic assessment is the cornerstone of safeguarding your operations and bolstering your cash flow.

Information is Power: In today’s dynamic business landscape, knowledge is key. Seek out the finest credit information provider tailored to your industry. Stay ahead with the most current data, including insights into how other suppliers have fared with their payments. Armed with this knowledge, you can make astute, data-driven decisions.

Timely Action, Tangible Gains: Time is money, especially when it comes to overdue invoices. Swift action is your key to enhancing cash flow and mitigating the risk of insolvency. Proactive measures ensure that your revenue stream remains robust and resilient.

The Insolvency Service released the latest set of statistics for August 2023 this morning, to understand what this means for you and your business please find a summary of the key points below.

Registered Company Insolvencies:

In August 2023, 2,308 registered company insolvencies were reported, this is an increase of 367 insolvencies when compared to August 2022 where 1,941 insolvencies were reported.

These figures are higher than seen both when Government measures were in place in response to the Covid-19 pandemic and pre-pandemic levels.

Among these insolvencies 221 were reported to be compulsory liquidations, representing a 45% increase in comparison to August 2022. Compulsory Liquidations have continued to climb after the pandemic partly due to the rising number of Winding-Up Petitions presented by HMRC.

However when it comes to registered company insolvency, the majority were Creditors Voluntary Liquidations (1,880), this is an increase of 13% when compared to August 2022.

Individual Insolvencies:

A total of 8536 individual insolvencies were reported to have taken place during August 2023. This is a decrease of 1,048 as 9584 individual insolvencies were reported in August 2022.

Of these individual insolvencies, 648 were bankruptcies, 2714 were debt relief orders and 5174 were reported to be Individual Voluntary Arrangements. (IVA’s).

A decrease in Individual Voluntary Arrangements can be seen when comparing August 2023 to August 2022 when around 7,340 Individual Voluntary Arrangements were reported.

Corporate insolvencies remain at elevated levels compared to both pandemic and pre-pandemic periods. In response to the above statistics, at Top Service we recommend taking the following steps to maximise the level of protection for your business:

Review Credit Management Tools and Processes:

• It’s essential for businesses to periodically assess the effectiveness of their credit management tools and processes.

• Given the elevated levels of company insolvencies, this review becomes even more critical to protect your business from potential financial risks.
• Consider adjustments to your credit assessment criteria in response to changing economic conditions.

Understand Trading Experiences:

Understanding how your current and potential customers are paying other suppliers can provide valuable insights into their financial health.

Industry specific trading experiences give you up to the minute information allowing you to make informed decisions beyond relying solely on credit limits and credit scores.

Businesses can better adapt to the current economic landscape, mitigate financial risks, and make informed credit decisions when they have the best credit management tools available to their industry. decisions when extending credit to clients.

A proactive approach to credit management is crucial in uncertain times to safeguard your company’s financial stability.

To be asked to the judging committee for the 2024 British Credit Awards is an honor that I have been delighted to accept. I’m looking forward to the process and being part of recognising the credit industry and the professionals that work so hard within the industry.

The August statistics for building materials and components released by the Department for Business & Trade provide valuable insights into the current business environment. Let’s break down what these statistics mean for your business:

Price Trends:

The statistics show that 30% of trading businesses advised that they have seen an increase in prices for goods and services that they purchased during the month of July. This has slowly decreased and is the lowest percentage reported since the peak 50% in March 2022. For your business, this suggests that the pressure of price increases might be easing, which could positively impact your procurement costs.

Turnover:

As we continue to make our way through September, 18% of businesses expect their turnover to increase this month. Whilst this is a steady increase from the 15% of businesses expecting their turnover to increase last month (August 2023) 55% of trading businesses still expect their turnover to stay the same for the month of September 2023.

On the subject of turnover, 17% of trading businesses reported that their turnover was higher in July 2023 when compared to June 2023. This is the first increase reported since March 2023. An increase in turnover can be a positive sign for your business, indicating potentially improved demand or market conditions.

Domestic Demand:

An increase in domestic demand has also been reported for the month of July 2023 by 11% of trading companies when compared to June 2023. An increase in domestic demand can present opportunities for your business to expand its customer base or sales.

Future Price Increases:

Looking ahead to September 2023, 16% of trading businesses anticipate raising their prices, with 24% attributing this decision to rising energy prices. It’s important to consider how these potential price increases could impact your business, both in terms of costs and customer demand.

In summary, while there are some positive indicators such as decreasing price increase reports and an increase in turnover, the industry still faces challenges, particularly related to rising energy costs.

Reviewing your credit management practices will without doubt support your business by assessing the risk of extending credit facilities & increasing cash flow.

• Research the best credit information provider for your industry. Having the most up-to-date information and knowing other supplier’s experiences with payments will allow you to make the most informed decisions.
• Taking action on any overdue invoices sooner rather than later, will increase cash flow and reduce the risk of an insolvency occurring before your payment is received.

When a corporate insolvency occurs one of the biggest frustrations our members experience is when they can see large dividends have been paid out to shareholders. 

We’re delighted to be able to explore this subject with the author of this article & Top Service friend, Brendan Clarkson (PKF).

What is a Dividend? 

Dividends are the payments a company pays to its shareholders out of its profits as a return on their investment.

Many shareholder directors take part of their remuneration as dividends – but failure to comply with legal requirements set out in the Companies Act 2016 could have serious consequences.

Why Pay Dividends?

It is common practice for director shareholders to take a nominal salary (or even no salary at all) and take most of their drawings by way of dividends. This approach reduces tax costs as PAYE / NIC are not payable on dividends.

From April 2023, the first £1,000 of dividend income will be received tax-free, but any dividends received in excess of £1,000 will be taxed at a higher rate depending on an individual’s income tax bracket.

Tax is then paid on income from dividends above the dividend allowance. However, tax is not paid on any dividend income that falls within an individual’s personal allowance (the amount of income that can be earnt each year before paying tax).

The table below gives a general idea of how much tax is paid on dividends: 

Dividend Payments – The Law

The payment of dividends is governed by UK law and specifically, the Companies Act 2006 (part 23). This states that:

• A company can only pay a dividend out of accumulated realised profits after accumulated losses.
• Directors must refer to accounts showing the company’s profits, losses, and liabilities, such as the last set of published annual accounts. Interim accounts can be used if reasonable judgement can be made on the state of the company’s profits, losses, assets and liabilities, provisions, share capital and reserves.
• Directors have a duty of care to act in the best interests of the company and its creditors. This includes exercising reasonable care, skill and due diligence and promoting the success of the company, safeguarding its assets, and taking reasonable steps to ensure debts can be settled as they fall due.

Unlawful Payment of Dividends

Unlawful dividends can arise in several different ways, including where profits have been miscalculated or an incorrect figure from the accounts is used, where there is poor record keeping or if the company is insolvent.

To minimise the risk of unlawful dividends being paid, directors should consider the following:

• Use the last circulated set of published accounts or up-to-date management accounts to calculate dividend payments.
• Seek advice from the company accountant to make sure figures are calculated correctly before paying a dividend.
• Keep adequate records of board meetings, conversations, and paperwork each time a dividend is declared. Adequate record keeping and processes will assist a company should any issues arise after a dividend is declared. This includes recording what figures were used to calculate the dividend payment.
• Seek professional advice either from an accountant or an insolvency practitioner if there is any concern around the company’s financial position.

Unlawful Dividends in Insolvency

Unlawful dividends in the context of insolvency refer to dividend payments made by a company that is insolvent or on the verge of insolvency.

Insolvency occurs when a company is unable to pay its debts as they become due or when its liabilities exceed its assets.

When a company becomes insolvent, it’s directors have a duty of care to act in the best interests of the company’s creditors, rather than prioritising the interests of its shareholders. 

Directors must take into consideration the company’s financial position and its ability to meet its obligations before taking or authorising any dividend payments.

If a company pays dividends when it is either insolvent or if it becomes insolvent as a result of paying the dividends, then those dividends may be considered unlawful.

Unlawful dividends in insolvency can have the following consequences:

• Repayment. If the company enters an insolvency process, the appointed insolvency practitioner has the power to demand the repayment of unlawful dividends.
• Directors Liability. Directors who authorise unlawful dividend payments may be held personally liable and be required to solely repay the full amount back to the insolvent estate.
• Misfeasance. If a director’s actions in relation to the payment of unlawful dividends are found to be improper or in breach of their duties as a director of the company, they may be held liable for misfeasance. Misfeasance claims can be brought against the director of a company by the appointed insolvency practitioner or by one of the company’s creditors and may result in the directors being ordered to repay or compensate the company.

An insolvency practitioner has a duty of care to all creditors and must report on the affairs of a company and the behaviour of the director. This could lead to further action against the director such as prosecution and disqualification.

The specific rules and consequences regarding unlawful dividends in general and in company insolvencies are outlined in the Insolvency Act 1986 and the Companies Act 2006.

It’s always worth seeking legal advice from a qualified professional when dealing with dividend distributions to ensure compliance is adhered to with regards to specific company laws and regulations.

*Information contained within this guide is correct as of April 2023.

A credit policy provides a framework for managing credit related processes, sets clear expectations and promotes efficient communication within a construction business. 

By implementing and adhering to a credit policy, businesses can mitigate financial risks, improve cash flow and support sustainable growth.

A credit policy can support construction businesses in several ways:

Streamlining credit processes: 

A credit policy provides clear guidelines and procedures for extending credit to customers. It helps standardise the credit evaluation process, ensuring that consistent criteria is used to assess creditworthiness. This can prevent inconsistencies and biases in credit decisions and improve the efficiency of credit evaluations.

Setting credit limits and payment terms: 

A credit policy outlines the factors considered when setting credit limits for customers and determining payment terms. By establishing a systematic approach, the policy helps construction businesses avoid overextending credit to risky customers and ensures that payment terms are appropriate for the industry’s payment patterns. In turn, reducing the risk of late or non-payments and improving cash flow.

Managing invoicing and collections: 

A credit policy can provide guidelines for the invoicing process which emphasises the importance of accurate and timely invoicing. It helps invoicing teams understand how their actions affect payment timelines and encourages them to prioritise prompt and accurate invoicing. Additionally, the policy can outline the steps to be taken in case of unpaid invoices, providing a framework for effective credit collection activities.

Enhancing communication and collaboration: 

By clearly communicating the credit policy across the organisation, all teams involved in the credit process including business development, invoicing, branch managers, and credit management can understand their roles and responsibilities. This promotes collaboration and a shared understanding of the importance of both sales and cash flow. It reduces friction between teams and fosters a more integrated approach to achieving business goals.

Mitigating risks and improving cash flow: 

A well-designed credit policy helps identify potential credit risks and outlines strategies to mitigate them. By minimising the likelihood of non-payment or late payment, construction businesses can improve their cash flow. The policy can also address how to handle invoice disputes promptly, reducing delays in resolving payment issues and ensuring a steady cash flow.

Sharing Your Credit Policy

Sharing a credit policy with customers can contribute to improving and strengthening business relationships. 

Transparency and trust: 

By sharing your credit policy with customers, you demonstrate transparency and openness in your business practices. This helps build trust and credibility with your customers, as they have a clear understanding of your credit evaluation criteria, payment terms, and dispute resolution processes. It shows that you have well-defined procedures in place and operate in a fair and consistent manner.

Clear expectations: Sharing your credit policy at the beginning of the relationship sets clear expectations for both parties. Customers are aware of what is expected of them in terms of payment timelines, invoice accuracy, and compliance with your credit terms. This can help prevent misunderstandings and disputes in the future.

Improved communication: The credit policy can serve as a communication tool to address any concerns or questions customers may have regarding credit limits, payment terms, or invoice disputes. By proactively sharing this information, you provide an opportunity for dialogue and clarification, fostering better communication and understanding between your business and its customers.

Collaboration and problem-solving: When customers understand the criteria for increasing credit limits, they can actively work towards meeting those requirements. This promotes collaboration and engagement between your business and its customers, as they strive to build a stronger relationship based on mutual trust and financial stability. It creates an environment where both parties work together to find solutions and overcome potential credit-related challenges.

Competitive advantage: In a competitive construction market, having clear and consistent back-office practices can differentiate your business from competitors. By demonstrating a well-defined credit policy and efficient credit management processes, you showcase your professionalism and reliability. This can contribute to winning contracts based not only on price but also on the strength of your business operations and the ease of doing business with you.

Remember to consider the appropriateness of sharing sensitive financial information within your credit policy. While it can be advantageous to communicate your credit policy’s general principles and guidelines, you may need to exercise discretion when sharing specific details related to credit limits, payment terms, or other proprietary information.

Creating a Credit Policy 

Creating a credit policy requires careful consideration of the business goals, internal challenges, industry factors, and legal requirements. Here are some steps to help you create an effective credit policy:

Define the business objective: Clearly identify the purpose of the credit policy. Determine why you are extending credit facilities to customers, whether it’s to achieve sustainable growth, remain competitive, or minimize bad debt. This objective will guide the development of your policy.

Involve key stakeholders: Engage relevant departments and individuals impacted by credit facilities and unpaid invoices within the business. Seek input from finance, sales, credit management, and legal teams to understand their challenges and ensure their perspectives are considered in the policy. You may even want to discuss and get ideas from 3rd party providers who support your business’s credit management function. For example, your credit information provider or DCA (Debt Collection Agency)

Consider internal and external factors: Assess your business size, cash flow, and forecasting capabilities. Take into account industry trends and economic or political factors that may impact credit decisions. These considerations will shape the specific guidelines and criteria in your policy.

Review terms and conditions: Evaluate your existing terms and conditions, including payment terms, interest clauses, invoice query resolution, and retention of title clauses. Align these elements with your credit policy to ensure consistency and clarity in customer agreements.

Determine department responsibilities: Clearly define the roles and responsibilities of each department involved in credit-related activities. Identify which teams are responsible for credit evaluations, invoicing, collections, and dispute resolution. This promotes accountability and efficient collaboration.

The balance between risk and customer relationships: 

Find the right balance between a restrictive policy that reduces bad debt but may hinder customer acquisition, and a loose policy that increases cash flow risks. Consider your risk tolerance and the impact on customer relationships when setting credit limits and payment terms.

Assess credit tools and resources:

Evaluate the tools and resources needed to achieve the objectives of your credit policy. This may include industry-specific credit information services and collections agencies that align with your business culture and customer relationship goals.

Regular review and evaluation: Once the credit policy is implemented, establish a process for regular review and evaluation. Monitor its effectiveness, identify areas for improvement, and make necessary adjustments to ensure the policy continues to support your business objectives.

Remember, a credit policy is not a one-time creation. It should evolve with your business and adapt to changing circumstances. Regularly assess its effectiveness, update procedures as needed, and stay informed about industry best practices to maintain a strong credit management framework.

Emma Reilly MCICM, CEO and credit expert at Top Service Ltd & her team are always more than happy to discuss credit management practices and tools. 

T: 01527 518800

Our very own CEO provided a guest blog for the latest Registry Trust newsletter. Discussing the impacts of rising energy costs, interest rates & the impact on the construction industry:

The construction industry is grappling with rising interest rates, which affects the cost of borrowing for construction projects. Additionally, inflation’s impact on the cost of materials and labour further strains construction businesses’ budgets and planning. It’s evident that businesses are facing numerous challenges in 2023:

Energy Costs: The substantial increase in energy costs by an average of 424% since 2021, as reported by the Federation of Small Businesses, puts additional financial pressure on businesses. This increase can impact overall operational costs and potentially affect profitability.

Company Insolvencies: The reported 27% rise in company insolvencies compared to the previous year, as stated by the Insolvency Service, suggests that businesses are facing financial difficulties. Economic instability and various cost-related challenges could be contributing factors.

Business Rates: The increase in business rates from April 1, 2023, based on updated rateable values from the Valuation Office Agency, adds to the financial burdens faced by businesses. Higher business rates directly impact the cost of occupying commercial properties.

Businesses are facing tough decisions to adapt to these financial pressures, such as re-evaluating their cost structures, finding ways to optimise energy consumption, exploring alternative financing options, or adjusting pricing strategies.

The combination of rising energy costs, increased business rates, expensive materials, and other financial pressures is driving more businesses into challenging situations.

The record levels of credit information searches by suppliers, as reported by Top Service, reflect a heightened awareness of the risks associated with extending credit facilities. This signifies that businesses are taking proactive steps to manage their risks and make informed decisions when dealing with other companies.

Reducing risk and maintaining sales while dealing with increased costs requires a delicate balance. Acting promptly when invoices become overdue to improve cashflow is highlighted as a crucial strategy for businesses to weather the challenges posed by rising costs and financial uncertainties. The construction industry, like all industries across the UK, needs to be proactive, agile, and simultaneously focused on the small details and big picture in order to successfully navigate the current economic environment.

We were pleased to welcome Rachel Maclean MP to our offices in Redditch to discuss Top Service’s success & growth.

Rachel says “

Meet Emma Reilly MCICM and Lisa Cardus from Top Service Ltd – two formidable business women who have taken their company from strength-to-strength!

Over the past year they have increased headcount by 25%, and their growth plans mean they will be hiring even more staff this year and next.

Their enthusiasm for what they do shone through on my visit today. It’s always uplifting to visit such a successful #Redditch business.”

The latest insolvency statistics have been published today by The Insolvency Service.

The number of registered company insolvencies in July 2023 was 1,727, 6% lower than in the same month in the previous year (1,831 in July 2022). This was higher than levels seen while the Government support measures were in place in response to the coronavirus (COVID-19) pandemic and also higher than pre-pandemic numbers.

There were 248 compulsory liquidations in July 2023, 81% higher than in July 2022. Numbers of compulsory liquidations have increased from historical lows seen during the coronavirus pandemic, partly as a result of an increase in winding-up petitions presented by HMRC.

In July 2023 there were 1,336 Creditors’ Voluntary Liquidations (CVLs), 17% lower than in July 2022. Numbers of administrations and Company Voluntary Arrangements (CVAs) were higher than in July 2022.

The latest insolvency statistics have been released by the Insolvency Service and show an increase overall in corporate insolvencies

The number of registered company insolvencies in June 2023 was 2,163, 27% higher than in the same month in the previous year (1,698 in June 2022). This was higher than levels seen while the Government support measures were in place in response to the coronavirus (COVID-19) pandemic and also higher than pre-pandemic numbers.

There were 260 compulsory liquidations in June 2023, 77% higher than in June 2022. Numbers of compulsory liquidations have increased from historical lows seen during the coronavirus pandemic, partly as a result of an increase in winding-up petitions presented by HMRC.

In June 2023 there were 1,759 Creditors’ Voluntary Liquidations (CVLs), 21% higher than in June 2022. Numbers of administrations and Company Voluntary Arrangements (CVAs) were also higher than in June 2022.

Emma Reilly advises ‘Now is the time to look at your current credit management tools and processes and review if they are adequate to maximise protection for a business. Understanding how your customers & potential customers are paying other suppliers should be a vital part of your due diligence. Ensuring you have an effective debt collection partner is also key, working with a business who shares your values and can collect money owed to you, whilst protecting your reputation will help to increase you cashflow.;