DOT.COMS SLIP THROUGH THE NET
Added: (Mon Nov 27 2000)
Pressbox (Press Release) -
Strictly embargoed until: 6am on 29th November 2000
DOT.COMS SLIP THROUGH THE NET
Companies face a bad debt meltdown from badly run dot.coms, according to leading finance provider NMB-Heller. Latest figures from the company suggest that despite their bad publicity, over 90% of businesses fail to credit check a dot.com before supplying it. This fact, combined with the speed with which dot.coms are setting up and failing, could leave thousands of financially stricken suppliers struggling to cope with the resulting bad debts.
This year alone 130 internet companies have failed across Europe and the US including many with a major UK presence such as Boo.com which owed creditors £178 million and former Prime Minister¡¦s son James Major¡¦s dot.com business which collapsed with debts of almost £300,000. Such company failures are wreaking havoc on virtually all sectors of the UK economy ¡V but according to NMB-Heller figures they are particularly damaging design, printing, IT, telecoms, recruitment, web design, marketing services and advertising sectors.
A key problem according to NMB-Heller is the fact that the majority of businesses still do not credit check their customers. Its figures suggest only one e-business order out of fifteen is checked to assess whether the potential customer is credit worthy. The reason for this is the speed of response the dot.com revolution demands, as Stuart Parker, Chief Executive of NMB-Heller explains:
¡§Whilst there have been many high profile dot.com failures, e-commerce is still going to be a fundamental part of all our futures. So businesses are understandably keen to capitalise on this growing sector of the economy by supplying its rising stars. But in e-business, two months is equivalent to a year ¡V so suppliers to the sector have got to be ready to respond quickly. Sadly with credit checking already the exception rather than the rule for most businesses, such demand for speed means few are credit checked or covered with bad debt protection.¡¨
According to NMB-Heller, over fifty percent of new businesses fail in their first four years but with dot.coms the failure rate is even higher, they are failing at a current rate of one a day and the debts they leave behind are huge. Stuart Parker again: ¡§We believe the failure rate is closer to 75% in the first two years. Yet all dot.coms have ambitious plans from day one. Success typically means growing big very fast, but that means running up debts very fast too, which if the companies fail their suppliers can spend years recovering from.¡¨
Figures from NMB-Heller illustrate this point. A print company facing a £20,000 bad debt with a profit margin of 8% will have to sell £250,000 additional print simply to recover to its position before the debt was incurred.
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