Bankruptcy

Right now, if someone owes you more than £750, you can petition the courts to make them bankrupt. This is great for SMEs who are generally owed a lot in much smaller amounts.

But it was announced recently that bankruptcy changes will come into effect from October 2015. From then creditors must be owed a minimum of £5,000 before they can start bankruptcy proceedings to pursue that debt.

Figures released by the Insolvency Service show that 15% of bankruptcy orders were made for debts of less than £5,000 last year¹, 785 of the 5,235 total creditor petitions for bankruptcy.

The sharp increase in the bankruptcy threshold will make it far harder for creditors to recover money owed. Obtaining payment through other means, such as County Court Judgements, is often unsuitable due to the cumbersome nature of the process and the lower prospects of a successful recovery.

This unexpected steep rise in the bankruptcy threshold will remove a crucial tool for debt recovery taken away. With a lot of SME businesses now being likely to be forced to write off a substantial number of small debts.

Previously the threat of putting someone into bankruptcy worked well to recovery payment of debts as the consequences were extremely serious. Now though, because the limit has increased, you will need to work harder to ensure that you’re paid.

One of the best ways to ensure that you are paid is to stay on top of your debtors. This means keeping your accounts up to date and sending reminders about overdue invoices as they become due. Simple software can automate this process and this is why we love Xero and Quickbooks are they can email statements and invoices to all of your customers at the click of a button.

So to improve your cashflow and prevent bad debts arising, get smart with your systems.

¹ Year end March 31 2014