Private sector suppliers, including limited company contractors, are focusing increasingly on their cashflow and threatening clients with legal action if they do not settle their invoices in a timely manner.

Lovetts, a debt recovery firm, reported recently that the average timespan from invoice date to ‘letter before action’ is now 68 days; down from 72. Suppliers’ willingness to wait for payment has now been decreasing for the last three consecutive quarters.

Lovetts’ MD, Charles Wilson, said that suppliers have adopted an attitude of debt is debt and it makes no difference who the customer is. He suggests that last year’s forbearance has now run its course and suppliers are getting tough on any late payers.

He went on to explain that last year, businesses gave customers much more leeway before threatening legal action in order to maintain a good working relationship.

However, companies must make sure they carry out their threats and pursue a legal claim. If they don’t follow up, they will be accused of crying wolf.

80% of businesses that send letters warning debtors of recovery action do secure payment, so they are an effective deterrent. But with debts to SMEs totalling a record £33.6 billion, suppliers must demonstrate that they mean business when it comes to chasing overdue invoices.

Bad debts are not the only problem facing UK SMEs at the moment.

Global recruiter Hays conducted research that discovered that 55% of jobseekers think they could get better benefits working for a larger organisation, and 52% are concerned that smaller firms lack stability.

Small businesses need to attract skilled and talents personnel in order to remain competitive and employers should take the time to explain the direction the business is heading and future growth opportunities to potential recruits, Hays director Charles Logan said.

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Since 2009, HMRC has sent out approximately 17 million letters to taxpayers, including umbrella company contractors. Now it has emerged that around 2,000 people have complained about the threatening tone of HMRC’s debt recovery letters.

A Treasury Select Committee has been looking into the effectiveness of the Revenue and it has stated that the tone of HMRC’s tax debt recovery letters was not suitable for some taxpayers. In some instances, letters were sent to people who didn’t even owe any tax.

The TSC said the letters suggested immediate settlement was required and although they referred to potential consequences if settlement was not made, they did not state what these would be. The Select Committee went on to say that such language is only appropriate if there is proof of repeated and deliberate non-payment. It is entirely inappropriate in cases where there is a dispute over the amount owed, where the taxpayer concerned is vulnerable, or where there is a possibility that no tax is owed.

According to the government, HMRC adopted a new approach to the collection of overdue taxes in 2009/10 and these letters were introduced as part of that new system. It claims to have modelled the approach on best practice used in the private sector as well as from the fields of psychology and behavioural economics and is designed to explain matters in simple, straightforward English.

This new system cleared up all but 15% of the debts outstanding in 2009/10, but the government did admit that some threatening letters should not have been sent out. HMRC has now offered an assurance that threatening letters will be more accurately targeted in future.

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New research from Aviva shows that around 10% of small firms in the UK are worried they might have to close this year if trading conditions do not improve.

Aviva surveyed 500 small businesses and discovered that a mere 13% feel positive that the British economy will improve, whilst 28% think that we might drop back into recession.

David Bruce, Aviva’s commercial product manager, said confidence among SMEs is at its lowest since the start of the global downturn and many are now seriously concerned that they will lose their business if the economy doesn’t improve this year.

The FPB was not surprised by these findings and believes the general pessimism is caused in part by the lack of accessible funding for small enterprises. The banks taking part in Project Merlin have so far failed to meet their key lending targets. However, the current economy could offer business owners the opportunity to move into niche markets and high redundancies mean there is a strong pool of candidates to recruit from.

17% of firms are using sales and discounts to keep their business thriving and another 17% have had to resort to permanent price reductions. 14% are looking to cut salaries or benefits, and 9% are thinking about reducing their permanent headcount.

The downturn in demand is affecting nearly 66% of firms according to Lovetts, the commercial debt recovery law firm.

The government has come up with measures to help small businesses, such as the New Enterprise Allowance and the Red Tape Challenge, but these have not brought about an entrepreneurial uprising.

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What makes the British workforce tick? Is it job satisfaction or pay and benefits?

Last year, the number one reason for changing jobs was job satisfaction, but that has now been overtaken by a desire for better pay and conditions and that could lead to more people choosing to live the life of an umbrella company contractor.

The CIPD recently surveyed members of the UK workforce and discovered that employees now place greater emphasis on salary increases and benefits. 2,000 employees took part in the research and 54% cited better pay and benefits as their main reason for looking for a new position. 42% said they were looking for greater job satisfaction.

Last year, enjoyment of their role was cited by 61% of the employees looking for a change and 48% were motivated by more cash.

The CIPD’s senior public policy adviser, Ben Willmott, said employees are still feeling the impact of the economic crisis. Salary freezes or low pay increases mean their remuneration is not keeping pace with inflation.

As well as wanting to leave for better pay elsewhere, employees with financial problems are much more likely to suffer stress at work and generally feel less satisfied in their post. Too much stress is associated with a higher incidence of mental ill health, prolonged absence from the workplace and higher levels of accidents, Willmott pointed out.

It is in an employer’s best interests to support the workforce during tough times and make sure line managers have effective people management skills. They should also offer advice and support on financial planning and debt management, he added.

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The Office for Budget Responsibility says that tougher austerity measures and higher taxes are needed if Britain is to achieve long term fiscal sustainability.

The UK has an ageing population that is putting pressure on the long term sustainability of public finances, according to a report published earlier this month from the OBR. Over the next fifty years, the number of people in retirement will increase sharply, whilst the number of working age individuals will decline. Currently we have 4 people working to support one pensioner, but that ratio will soon become 2:1.

Analysts predict that the UK population will reach 75 million by 2060, putting additional pressures on the cost of pensions and health care. Without substantial policy changes, the OBR warns that UK net debt levels will rise above 100% by 2060.

In order to bring the debt level down to 40%, the government will need to find an extra £22 billion. The key to sustainable public finances lies with public health but unless NHS productivity improves the UK’s debt levels could rise dramatically.

The OBR report also showed the financial services industry contributed approximately £40 billion of GDP in tax, in 2007. However, it is thought the sector’s contribution will drop to about £34.6 billion if tax rates remain unchanged. The OBR therefore expects the UK economy will rely less on financial services in future years.

The British Chamber of Commerce’s chief economist, David Kern, said the report suggests that we are unlikely to see a return to the level of public sector spending witnessed before the recession. The UK has to adapt its ambitions to more limited resources and acknowledge that the private sector is responsible for creating wealth through greater productivity and increased growth.

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Umbrella contractors may be relieved to learn that government data shows there has been a decrease in corporate insolvencies this year.

However, PwC has warned that company collapses will rise in certain sectors because of weak consumer spending and the impact of government austerity measures.

3,531 companies went into administration in the second quarter of this year, down 685 on the previous quarter. Government measures, such as tax deferral schemes and low interest rates have helped some businesses stay solvent.

However, Mike Jervis, PwC corporate insolvency partner, said firms are not out of the woods yet. The hospitality, leisure and retail sectors could well see an increase in insolvencies in the next 12 months.

He went on to point out that low consumer confidence is a real challenge in the short-term, but refinancing debt will become a challenge in the medium-term.

Despite the number of insolvencies decreasing across the UK as a whole, a report by KPMG indicates that Scotland was not so lucky and saw a 17% quarter-on-quarter increase to 329.

Small businesses were responsible for the majority of the failures as 286 Scottish companies went into liquidation. At the same time, the number of larger businesses calling in an administrator or receiver dropped by 19% to 43.

KPMG’s head of restructuring, Blair Nimmo, said small businesses are still finding it tough but larger organisations are now having fewer problems. He went on to add that funding was available, even for distressed companies and despite the burden of increased tax, lack of confidence and government spending cuts, the impact has not been as dramatic as some people had predicted.

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London and the South East of England top the late payments league, according to the latest study from Bacs.

Nearly 400,000 UK enterprises suffer because of delayed payments and the average owed to one company at any one time is £27,000. Although more firms in the south of England are owed money, they do not have as much debt outstanding as companies in the Midlands who are owed up to £38,000.

Large corporations are responsible for the lion’s share of the debt. They owe £24 billion to British SMEs and in some cases invoice settlement is up to 52 days overdue. The public sector and not-for-profit organisations on the other hand improved their payment times in the last half of 2010.

33% of SMEs say big companies are behind overdue bill payments and those operating in the manufacturing sector are the most likely victims. 53% of UK SMEs have suffered late payment, up 8 percentage points from June last year. When they do eventually receive settlement it’s an average 39 days over the agreed payment terms and this rise rises to nearly 50 days overdue in the distribution sector.

The burden of chasing overdue bills is having an adverse impact on smaller businesses. They now need to devote half a day every week to chase payment, equating to over 158 million man hours the British economy loses just to pursuing overdue debts.

At the same time, the number of firms using Invoice Financing to help improve cashflow rose by 16% in the year ending April 2011, according to the Royal Bank of Scotland.

Mike Hutchinson, Bacs’ head of marketing, urges more SMEs to use automated payments if possible so they can better manage funds which are under their control.

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Umbrella company contractors may be about to witness the biggest drop in household incomes for 30 years, according to the Institute for Fiscal Studies.

A recent study from the think tank found that median take-home incomes increased during the credit crisis but it was entirely possible that they decreased by 3% in the last financial year. If that were the case, income levels would be back where they were in 2005.

Wenchao Jin, a research economist at the IFS, pointed out that average living standards rose during the economic crisis, largely due to benefit and tax credit increases. But this growth cannot be sustained and we now face a bleak outlook for incomes as the long term effects of the recession have just delayed, rather than avoided, a drop in living standards.

This will not come as good news to the 35% of adults in the UK who are neglecting their personal finances. The Priorities of Life Index from Scottish Widows has revealed that a total of 17 million British adults avoid thinking about their finances.

Just over 20% of these said they had too much debt to be able to feel financially secure and 32% claimed they were not paid enough to be able to put money aside. An additional 25% of people said they push thoughts of their personal finances to the back of their mind on a day to day basis.

Iain McGowan, a savings expert at Scottish widows, said we are struggling to prioritise the things that really matter to achieve financial stability and as a result our savings and financial security are suffering. Everyone knows it’s important to save and take the time to sort out financial worries but more than a third of us do not take the time to prioritise our financial affairs, he concluded.

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The latest statistics from the government show that UK bankruptcies have fallen significantly over the last 12 months.

The Insolvency Service report shows that there were 12,539 bankruptcies in Q1 this year, a drop of 31.3% on the comparable quarter last year. However, this is still a slight increase on the 12,028 bankruptcies lodged in the final quarter of 2010.

Personal insolvencies, including those attributed to umbrella company contractors, also dropped by 15.5% year on year, to 30,162, and IVAs fell 8% to 10,835 in the first quarter of 2011.

Louise Brittain, a partner in the insolvency team at Deloitte, said it was a matter of concern that individuals do not seem to be turning to the formal process for advice on handling their debts. Personal debt is still crippling many households across the UK.

She went on to point out that economy is still fragile and we cannot bank on these reductions continuing for the rest of the year. Small firms in particular will feel the effects as personal guarantees on business debts become due and the true impact of the VAT increase is felt.

Pay Boyden from PwC said there was evidence to suggest that households are currently struggling with every day financial pressures like utility bills as opposed to their existing levels of debt.

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Accountants claim that HMRC is adopting threatening behaviour towards innocent tax payers and umbrella company contractors in a bid to gather in more income.

The Revenue has sent out letters telling people they are arranging to visit their house in order to list possessions that could be sold at auction.

These threats contravene the guidance for debt collectors laid down by the Office of Fair Trading but amazingly government departments, such as HMRC, are not covered by these guidelines.

However, HMRC cannot force its way into somebody’s home without a warrant. It can only assess people’s belongings if they are invited into the home.

One 69 year old woman was threatened by the Revenue’s debt management team in January. She owed a total of £1,296 and set up an arrangement with HMRC’s Cumbernauld office to pay the debt in monthly instalments of £217. Despite sticking to the arrangement, the woman has received letters from the Croydon debt office threatening to take her possessions to sell at auction.

Robin Williamson, from the Low Incomes Tax Reform Group, said that people should not receive this sort of letter if they dispute a debt or have already agreed payment.

In a related story, HMRC is accused of profiting by delaying payment of tax refunds. The Revenue charges 0.5% interest on tax it needs to repay but 3% on overdue tax that it is owed to it. Tax advisers say that some tax refunds are being held up by as long as ten weeks while the Revenue undertakes random security checks.

A spokesman for the Revenue said that the majority of refunds are paid promptly and the interest rate on overpaid tax reflects the return on deposits whilst the rate on unpaid liabilities is designed to encourage prompt payment.

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The chances of companies collapsing are increasing by the month, according to a new study from RSM Tenon.

Is your contractor umbrella company one of them?

The company discovered that firms at high risk of collapsing increased by 3% each month, compared to the previous quarter’s figures.

RSM Tenon’s head of recovery, Carl Jackson, said that although we are no longer in recession, high oil prices, inflation and the government austerity measures are all affecting UK businesses.

Worst hit on the Traffic Light report are property companies. This month, the sector has seen a 17% month on month increase in firms at high risk of insolvency.

Meanwhile, UK enterprises rely more heavily on debt finance than nearly every other European country.

Creditreform, a German credit rating agency, analysed the financial statements of over four million European firms and found that only businesses in Italy and Ireland had more exposure to loans and external creditors than the UK. In fact, 31.4% of companies in the UK had an equity ratio under 10% in the 2009 financial year. 23% of German companies had an equity ratio less than 10%, whilst only 14% of Swedish firms were in a similar situation.

Creditreform concluded that the increased risk of insolvency is directly linked to weak capitalisation and financing problems are particularly prominent in nations where a lot of firms have an equity ratio less than 10%.

Martin Williams from the credit agency Graydon, says this research shows that businesses in the UK had followed the pattern of individuals are relied too heavily on debt. Because of the high level of indebtedness, we were not prepared for the recession and businesses found it very hard to get hold of more finance.

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UK personal debt has now reached “tipping point” according to a recent report from moneysupermarket.com.

The head of loans and debts at the comparison website, Tim Ross, says that the problem has been compounded by recent changes to the taxation system in this country. The average UK personal debt is now £8,400 but people don’t see debt as a major concern until they owe at least £9,700. Even worse than that, the majority of people, including umbrella company contractors, in debt do not seek professional advice until they owe at least £19,478.

Personal finances are being squeezed more than ever as the cost of living soars, taxation limits change and certain benefits are removed.

It’s hard enough to make ends meet without having to juggle debt repayments, Moss continued. Men appear to be less concerned about debt than women and it is a great cause for concern that it takes an extra £4,500 worth of debt before they worry.

Around 10% of people in debt can only afford the bare minimum monthly payment to avoid penalty charges. Unsecured loans tend to come with high interest rates and just paying the monthly minimum does not make significant inroads into reducing the debt.

The problem is likely to escalate later this year as the government austerity measures really start to bite. Interest rates have been held at a historic low for more than 2 years, but that situation cannot last for much longer and once rates rise, a lot of mortgage holders will see their monthly repayments increase as well, adding more financial misery to homeowners.

Mr Ross advises anyone with debt problems, including contractors, to seek professional help as soon as possible.

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