A policy for pre-packs and phoenix companies is vital

Tim Bowler
Wednesday, April 18, 2012

It's not unusual for print companies to make contact with paper merchants for supplying phoenix companies and sometimes try and exert pressure not to supply them. However, the NAPM advises all members to have a policy concerning phoenix and pre-pack companies, because bad debt and the risk of bad debt remains the main concern for our members. Some NAPM members have more subjective policies than others who may well have decided not to supply any phoenix or pre-pack company.

If a company has failed in the current climate, it is probably going to fail again. NAPM statistics on phoenix companies show that four out of five will fail within two years. Paper merchants are obviously therefore not very keen to supply pre-packs due to the increased risk involved.

The NAPM figures on the annual gross bad debt experienced by the paper merchanting sector show there was a big jump between 2008-10, peaking in 2009 at £17.5m – almost double the £9.3m recorded in 2007. An impact of the increased bad debt was the withdrawal of credit insurance for much of the sector.

This has made tighter credit controls all the more important and the credit control managers of the major UK paper merchants regularly meet in the NAPM Credit Committee to discuss issues related to credit risk. In turn, this contributed to a major reduction in gross bad debt, which fell to £9.4m in 2011 despite a number of major print insolvencies –  such as the failure of Pindar, which owed £6.5m to trade creditors when it went into administration.

Another major concern for print and paper companies has been the rapid decline in paper consumption between 2008-2011, with almost a quarter less tonnes sold in the UK in 2011 than in 2008. This increase in the rate of decline, from around 1.5% a year before 2008 to almost 8% a year since then is expected to continue for the next three to four years and everybody admits that that volume won’t come back.

This has meant massive overcapacity for both print and paper and while paper mills and merchants have been taking capacity out through voluntary site closures and other forms of consolidation for years, it is only recently that the larger print companies have begun to do the same thing.

Read PrintWeek's Briefing on this subject here

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