The Analysis News & Opinions


‘Industry warned that debt issues are starting to develop’


The credit industry has been warned to be wary of growing trends that point towards consumers having increasing debt problems. Speaking at an event organised by


CCRMagazine and Arrow Global Group, last month, Kathy Cox, director of originations at Arrow Global Group, said: “So, are defaults set to rise? Very helpfully, the Bank of England has put out some fresh data which reveals that credit-card debt has reached a record high. Overall unsecured debt (including overdrafts) is rising at its fastest pace for 11 years. “Maybe we do not entirely agree that debt


is rising, but this does reinforce some of the trends that we have been seeing: there are worrying levels of consumer debt, particularly on the unsecured side.


“November’s Financial Stability Report, from


the Bank of England, shows that household debt-to-income is 136%, and rising again for the first time since the global financial crisis.” Arrow has updated consumer research carried out for Debt Britain in 2015 to track


how the picture had changed, and found: l The number of people saying that have taken on more debt over the last five years has risen sharply to 37% in 2016. l Credit cards have become the most popular form of debt, with 48% having unpaid credit cards, 42% unpaid mortgage arrears, and 31% an unpaid bank overdraft. Credit cards were the source of debt that consumers struggled most to repay. l Mortgage possessions were overestimated in the last year, while personal insolvencies have been underestimated. Ms Cox concluded: “We feel that default


issues are starting to develop within the market. We may not see them yet, but we think there are some clear indicators that we should be alert.”


Firms to report on payment


Credit management professionals have welcomed draft regulations that will require large companies to publish details of their payment practices. Philip King, chief executive of the


Chartered Institute of Credit Management, said: “The small business minister, Margot James, is to be applauded for engaging with and listening to organisations like ourselves and the Federation of Small Businesses, in driving real change. “The new ‘duty to report’ will lead to


much greater transparency and is clearly one of a suite of measures to improve payment practices, including the Prompt Payment Code, the appointment of a new small business commissioner, and, first and foremost, best-practice credit management. “I am pleased to see that the government


is itself taking measures to ensure all strategic suppliers are signed up to the Prompt Payment Code and this is an opportunity for other large businesses to take similar positive action to show they genuinely value the supply chain.”


8 www.CCRMagazine.co.uk Mr King admited that not all of the


proposals in the draft regulation would be universally welcomed: “The requirement for firms to report at an individual company level, rather than at a ‘group’ level, will cause difficulties for some organisations, but at least there has been the opportunity for discussion and consultation.” Ms James said: “Unfair payment practices and unnecessary red tape hamper firms’


ability to grow and have no place in an economy that works for all. By shining a light on how large businesses pay their smaller suppliers, we want to empower small businesses and drive a real change in payment culture.” Mike Cherry, national chairman of the


Federation of Small Businesses, agreed: “The comprehensive and regular duty to report is the first step to combat a business culture that feels like one where it is OK to pay small firms late. It is not OK – we estimate that 50,000 business deaths could be avoided every year, if only payments were made promptly – adding £2.5bn to the UK economy. “We need to see executive board


level engagement and scrutiny of payment practices to deliver lasting cultural change. “This is part of a package of government


measures to tackle the issue of late payment. This includes the appointment of the small business commissioner, who from autumn 2017 will support small businesses in resolving payment disputes.”


January 2017


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