Belfast’s Pure Fitout entered administration in January citing non-payment of invoices
Companies must do all they can to ensure they are protecting themselves and their revenue streams by managing credit risk.
The upcoming changes to employer national insurance contributions and national living and minimum wage rates have many businesses locally worrying that some of their customers could be forced into insolvency by an ever-increasing cost of doing business and leave them with unpaid invoices for goods they have sold on extended credit terms.
Northern Ireland remains a post-Covid anomaly, with only the HMRC capable of bringing insolvency proceedings forward without a court order, but nevertheless insolvencies increased by 40% in 2024, meaning that increases will not be solely due to April’s cost increases.
But the damage these pending increases have done to business confidence, even before their implementation, has forced some businesses to scale back, with around 65% of hospitality businesses in Northern Ireland planning to reduce employment, for example.
Business pages of late have featured stories that typically precede news of major insolvencies: Asda has axed 10,000 bonuses for managers; credit card borrowing has seen its sharpest rise since 2023; and overdue invoices reached a three-year high.
Although UK interest rates are on a downward trajectory, global and domestic economic uncertainty could see an increase in inflation which would likely slow further rate cuts.
These factors have been felt locally already, most notably through the recent news of the closure of Thos W McDonagh Ltd, trading as Obin Specialist Joinery, the 126-year-old Armagh company that was forced to close its doors after “non-payment by contractors”. Belfast’s Pure Fitout entered administration in January citing the same issue, non-payment of invoices.
However, companies who have trade credit insurance are protected against such instances.
One positive Covid-era legacy is that the cost of trade credit insurance is at its lowest in years. During the pandemic, the UK Government agreed a £10 billion back stop guarantee to the credit insurance sector, for which they received a significant percentage of the insurers’ premiums. A competitive pricing environment has emerged since the scheme ended, with insurers fighting to regain liquidity through offering lower premiums.
But this will only remain the case while insolvency claims remain relatively low, with premiums expected to harden when the expected increase in business failures occurs.
The true impact of April’s cost increases for businesses will most likely not be felt until the autumn, but retail and hospitality will be hardest hit given their high levels of low skilled workers.
Nigel Birney, head of trade credit at Lockton
Businesses in England will suffer from the cutting of the business rates discount, but their Northern Ireland counterparts have never had such a discount apply, meaning it’s likely the worst impact will be felt here, in our SME-dominated economy.
With economic prospects looking unlikely to improve in the short to medium term, it’s time for our companies to do everything they can to ensure they are protecting themselves and their revenue streams by managing their credit risk.
Nigel Birney is head of trade credit at Lockton