The Angle: Debt recovery in the wake of COVID-19

The Angle: Debt recovery in the wake of COVID-19

What’s behind the recent upturn in demand for debt recovery support? Our expert panel discussed the impact of the cash flow problems that have followed the pandemic.

Since 2020, the economic disruption wrought by the COVID-19 pandemic has caused serious problems for businesses around the world. The lockdowns and restrictions that prevented businesses from trading normally or forced them suspend activity entirely have had a deleterious effect on revenues.

As a result, businesses have struggled to make loan repayments and meet other financial obligations, while continuing uncertainty about the future has made long-term planning even more difficult.

Many companies have focused on debt collection as a way of maintaining their stability. However, debtor businesses have been under pressure to maintain their own cash reserves for the same reason. The resulting cash flow issues have led to an increased demand for debt recovery support.

At The Angle, Markel’s thought leadership event focusing on the realities of the professional indemnity insurance market, the panellists discussed their own experiences of the upturn in debt recovery.

A sense of urgency

“Debt has always been a popular subject”, said Beverley Bates, director of advice services at Markel Law. Previously, businesses were more likely to take “a pragmatic approach” to debt collection, wary that chasing debt can be costly in itself. More recently, however, pressure on cash flow has made businesses more willing to chase debt as soon as it’s due, and more interested in their legal recourse if their debtors do not – or cannot – cooperate. Bates had also noticed an uptick in businesses challenging service providers on value for money after the fact.

Interest in this area has risen notably in the last few months, Bates noted, with the political uncertainty in the UK throughout the autumn making things worse. “I wouldn’t say panic, but there is a sense of urgency.” Whereas this might have been seen as “part and parcel of running a business” before, she said, it’s increasingly seen as an “urgent issue that people need to deal with.”

Increased scrutiny

Cash flow issues are not the same for all businesses, however, explained Derek Cribb, CEO of IPSE, an association of independent professionals and the self-employed. Larger corporations are more closely scrutinised – by investors, rating agencies, and regulators – than SMEs, and “tend to have very good internal processes” as a result. They’re also more likely to have cash reserves and diversified income streams. For these reasons, large corporates are “paying as well as they usually do”, Cribb said. IPSE’s members are also normally paid on time, generally speaking, because they’re often seen as “pseudo-employees”, he added.

James Trezona, founder and managing director of the communications and marketing agency Rooster Punk, agreed. “Most of our clients are huge corporations. There’s more scrutiny on everything, and more uncertainty in those organisations”. The uptick in service businesses being challenged for their value for money has caused problems, he added. “With a marketing campaign, for example, we’re not building something where you can easily say it’s done or not done – targets are dependent on the economy. It can lead to some difficult discussions.”

Although the political situation in the UK has stabilised in recent months, the economic turbulence is set to continue. As a result, interest in debt recovery support is also likely to remain elevated, Bates predicted – “for the short term, at least.”