The news that retail franchise Arcadia Group has entered insolvency proceedings hit headlines at the beginning of December. Nimbla’s CEO and Founder Flemming Bengtsen spoke on Sky News about the impact that the company’s failure will have on its suppliers. You can watch the full interview below.
The fall of the retail titan leaves some 300 suppliers with substantial bad debts. Nimbla calculates that Arcadia could have left its suppliers with as much as £250 million in unpaid invoices.
The majority of the small businesses affected had not insured their invoices, and so were unprotected against Arcadia’s default on payment.
The default could push Arcadia’s smaller suppliers into insolvency themselves, creating a domino effect that sweeps through the supply chain.
Arcadia Group, which owns brands Topshop, Dorothy Perkins, Burtons and Miss Selfridge, joins a host of other major retailers that have entered administration following the pandemic lockdown measures.
These include; Debenhams, Bonmarche, Edinburgh Woolen Mill Group, DW Sports, Oliver Sweeney, Peter Jones, TM Lewin, Monsoon, Victoria’s Secret, Aldo, Oasis and Warehouse Group, Cath Kidston, Laura Ashley.
Around 600 major corporations have entered administration in 2020, with devastating effects for their smaller suppliers. Other than retail, the sectors with the most insolvencies were the leisure, real estate and hospitality sectors.
Even under normal trading conditions, it’s not a question of whether your business will be hit by a customer default on payment, but when. In 2019, small businesses were owed £23.4 billion in late payments by suppliers (Pay.uk data). This year, SMEs have written off £5.8 billion in bad debt (debt that won't be paid).
Small businesses are especially vulnerable to recessionary shocks. The average firm is currently owed £63,000 in unpaid invoices. For many businesses, this has resulted in severe constraints on cash flow, and two thirds of businesses say they are on the verge of insolvency as a result (ONS data).
At the time of writing, the Government restrictions on winding up processes are due to end on 31st December 2020, which could trigger a “flood” of insolvencies in the subsequent months, according to the ONS. The danger is not just a credit bubble that restricts recovery, but an insolvency domino effect that wipes out supply chains.
Thankfully, there are ways you can protect your business in the upcoming months. For free, real-time insights into the credit worthiness of your customers, sign up for Nimbla today. There’s no obligation to purchase insurance, but protection against defaults starts at just 0.2% of the invoice value.