Insolvencies are on the rise across the UK. Dale Hernon, head of client services at Kingston Smith & Partners, explains how lenders can reduce their exposure to bad debt…
NO PEER-TO-PEER platform wants a client to default on its loan. When a company becomes insolvent, there is little chance of the lender recovering anything more than a fraction of the outstanding loan value. But as the UK’s alternative finance market grows, defaults and insolvencies are set to become more common. In fact, according to the Insolvency Service, one in 242 UK companies have entered liquidation in the past 12 months.
Dale Hernon, head of client services at business recovery and insolvency specialists Kingston Smith & Partners, sets the scene: “Three years ago, loan defaults were relatively low within the P2P sector but, as the industry has matured, the demand for P2P loans has exploded. And so too, of course, has bad debt.”
Against this backdrop of rising insolvency risk and realising the situation would only get worse, Hernon took action. He set about designing a tool that would enable his alternative lender clients to have a complete overview of impending insolvencies so that they can take precautionary action.
“The need for transparency in the marketplace was obvious,” says Hernon. “So we built a system ourselves from scratch, KS Vision, which not only monitors ongoing insolvencies but also alerts P2P lenders to pre-insolvency proceedings.
“KS Vision provides specific information regarding petitions and the making of insolvency orders while also removing the administrative burden of creditors having to deal with such matters, including the entire processing of insolvency claims once an order has been made.”
KS Vision is a web-based case management system and client portal that is available (along with full training at no cost) to all alternative lenders, and anyone wishing to monitor and pre-empt insolvency situations. This tool enables Kingston Smith & Partners to significantly increase dividend levels for alternative lenders. In a recent voluntary arrangement, after long-running negotiations, Kingston Smith was able to increase the dividend level from 10p/£ to 100p/£ over five years, with 75p/£ being delivered within 12 months.
“We get instructions every day from alternative lenders,” says Hernon, who has been assisting P2P lenders for more than six years, as well as solicitors and debt collection agencies within the industry. “Most P2Ps don’t recognise when an insolvency is approaching, so it comes as a total shock to them.”
The key to getting the best result possible? Take action early and get expert advice immediately. KS Vision’s early alerts of bad-debt data is crucial. Not only can the P2P lender manage expectations of the relevant stakeholders, but the early action also ensures that the appointed insolvency professionals have the best chance of minimising the losses.
Kingston Smith & Partners is the business recovery and insolvency arm of top 20 accountancy and business advisory firm Kingston Smith. Kingston Smith as a whole group is showing itself to be a serial innovator with prestigious industry awards for combining creativity and technological savvy into practical, effective applications. It boasts Large Firm Innovation of the Year at the British Accountancy Awards 2018 and is finalist for Most Innovative Business Process in the Managing Partners’ Forum Awards 2019.