Building on our previous article, as the dust settles following the release of the Autumn Budget, businesses across the UK are beginning to assess its implications. While the budget aims to support economic stability, several measures may create financial strain for businesses. For many businesses, bolstering cash flow through improved debt collection may be a vital strategy for maintaining financial health.
Minimum wage Increase
One of the most significant aspects of the budget is the increase in the National Minimum Wage. The legal minimum will increase by 6.7% to £12.21 for those over 21, which is the equivalent of £1,400 a year for an eligible full-time worker. While this is a positive development for workers, increased wage costs are an operational expense, putting additional pressure on cash flow, especially for businesses operating on tight margins.
For businesses that rely heavily on minimum wage employees, this increase will likely lead to heightened financial strain. Companies operating on tight margins may find it particularly challenging to absorb these additional costs. This effect is likely to be felt across various sectors in particular, such as manufacturing, hospitality, retail, and healthcare, where minimum wage workers constitute a large portion of the workforce. Improving debt collection practices can help alleviate some of the financial pressure.
National Insurance contributions
Starting in April 2025, employers’ contributions to National Insurance will increase by 1.2%, raising the rate from 13.8% to 15%. Additionally, the secondary threshold for contributions—under which employers do not have to pay National Insurance—will be lowered from £9,100 to £5,000.
These changes are projected to generate approximately £25 billion annually by the end of the forecast period, which if achieved, will positively impact the economy. However, these measures may also place further financial strain on businesses’ profitability and their ability to invest in growth or hire new employees, particularly businesses in sectors that are already facing significant economic pressure.
The extension of the Energy Price Guarantee
The extension of the Energy Price Guarantee may stabilise energy costs for businesses temporarily; however, it also underscores the continuing volatility in energy prices. With energy bills representing a significant portion of operational expenses, businesses must find ways to improve their cash flow to absorb these costs effectively.
Despite the short-term stabilisation, there remains long-term unpredictability, with many businesses facing the possibility of fluctuating energy bills in the future. Businesses whose operations rely on high energy consumption must ensure they have the cash flow to withstand any future energy price increases.
Business grants
The proposed small business grants could provide some relief, but not all businesses will qualify or receive sufficient support. As a result, businesses should actively pursue other avenues to stabilise their finances, making debt collection an increasingly critical option.
With rising operational costs and fluctuating market conditions, overdue accounts are likely to increase. Many businesses may find themselves waiting longer for payments from clients, further straining their finances.
In conclusion, while the Autumn Budget offers some support for businesses, it also presents challenges that could exacerbate financial strain. As companies navigate these changes, bolstering cash flow will be essential to their survival. Effective debt collection strategies can play a crucial role in ensuring that businesses maintain healthy cash flow, allowing them to weather the financial pressures ahead.
As we move forward, businesses should remain vigilant and adaptable, leveraging all available resources—including robust debt collection practices—to secure their financial future in an uncertain economic landscape.
Enhancing debt collection
In our previous article, we explored several strategies businesses can implement to improve their debt collection processes. Here’s a quick recap of those key measures:
- Timely and accurate invoicing: Establishing a consistent invoicing schedule is crucial. Ensure that invoices are detailed, clearly outlining payment terms and due dates. Utilising invoicing software with automated reminders can streamline this process, making it easier to keep track of payments.
- Structured follow-up procedures: Implementing a systematic approach to follow up on overdue invoices can significantly enhance turnaround times for debt collection.
- Flexible payment plans: For debtors experiencing financial difficulties, offering flexible payment options can help maintain cash flow while preserving customer relationships. It’s essential to clearly outline payment terms and monitor compliance regularly.
- Train staff on best practices: Invest in staff training to equip employees with effective debt management techniques, improving overall collection success.
- Know when to seek legal advice: Recognising the right moment to consult legal professionals can help avoid prolonged disputes and uncollected debts, ensuring that your business’s financial interests are protected.
How can we help?
For more information about the subjects above don’t hesitate to get in touch with Simon Key (Partner), Dominic Simon (Senior Associate), and Serena Louca (Associate) in our expert Dispute Resolution team. Please contact the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.
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