Sub-Cultures of Debt
Over the last five years, debt has not just increased amongst consumers, but a new strata of commercial debtors has also emerged. There are now sub-cultures within what one would normally label ‘traditional’ consumers and businesses: those that understand their legal responsibilities and ignore them, and those that bury themselves away in an ‘insolvency culture’, believing that wherever the fault may lie, the law will protect them. It is an attitude that is becoming increasingly prevalent.
Contributing to an increase in late payment are customers that have a complete disregard for the principles of legal responsibility, and which I refer to as ‘low-intent debtors’ – those who use this emerging culture to avoid payment. And there is a recognisable behaviours pattern for many of this type.
The spreading and increasing culture of late payment, in part caused by the insolvency sub-culture, cannot just be blamed on easily available credit. Credit has been available for may years. Later emerging credit cultures such as we see in Germany, Holland and France have not caused so many problems.
So what is going wrong in the UK?
Let us consider limited companies. Companies House can be where many of the problems start. Firstly because there is some confusion as to its actual role: is it there to strictly enforce and police the registration of limited companies and LLPs, or is it just a record keeper? Indeed should it be both?
Secondly, should there be more or less regulation and address checking when setting up limited companies?
Can any business, I wonder, state that it has suffered loss as the result of the lack of information available from Companies House?
A small but significant number of new companies will have no intention of filing adequate returns or accounts, neither would the director information filed stand up to scrutiny.
It is often the case that very large amounts of credit are given without any credit checks or precautions. Even if status reports were available, there is little upon which to base a credible opinion. In the headlong rush to do business, some suppliers (understandably, but foolishly) extend credit without proper evaluation of the risks involved.
In such a competitive world often the risk to supply outweighs good business practices. But it gets worse. The sub strata of businesses taking credit will often deliberately allow themselves to be struck off the Companies House register and then start up again with slightly different names.
A typical example: ABC Export Limited obtaining credit, allowing itself to be struck off but it has carefully and quietly also been trading as ABC Exports Limited and will happily issue cheques in yet another name because the bank had not bothered to specifically check account details. And as an extra bonus, it will have transferred all assets long ago to yet another trading entity. In short, it has always been the deliberate intention to avoid the payment of debt.