A CCJ or county court judgement indicates a business has been ordered to make a payment by the courts. If you work with a business that has a company CCJ, you need to take immediate action to understand the situation. In this article, we’re going to explain what CCJ means and what action you should take.
The Importance of a Company CCJ Check
When you work with a company in financial distress, it may struggle to make payments. If the business eventually fails due to these issues and can’t pay you, it can have a catastrophic impact on your business.
As a trade creditor, you’ll be at the bottom of a creditor list and often see less than 10% of the money you are owed. Unsecured trade creditors of a failed company are three times more likely to go out of business than companies that haven’t had to deal with bad debt.
It can be challenging to tell the difference between a healthy business and one that is struggling if you don’t have access to the right data. One sign that can suggest a company is having financial difficulty is if it receives a CCJ.
What is a Company CCJ?
A CCJ is a type of court order used in the UK to force a business to pay a debt. Creditors can only use CCJs once they have tried and failed with other methods of debt collection.
If a business has a CCJ, it can be a sign that it is struggling to make payments. Knowing when a company you work with has a CCJ is important to protect your financial interests.
What Does it Mean When Your Customer Has a CCJ?
It can be alarming if a company you work with receives a CCJ, especially if this company is also indebted to your business. If it hasn’t paid one debt, will it also fail to pay yours?
You should remember that not every company that gets a CCJ does so because it can’t pay its debts. Sometimes a business will receive a CCJ because it disputed the claim that it owes money, or if it disagrees over the amount it owes.
However, a common reason for a CCJ is that the business cannot afford to pay what it owes. It may be struggling with liquidity, or the CCJ may be too large for the company to pay alongside its other commitments. Subsequently, a CCJ is often a precursor to a company becoming insolvent.
If the company becomes insolvent, you are unlikely to see your debt paid.
Whether or not the CCJ affects your business will mainly depend on the company’s ability to pay off the CCJ and continue trading as usual.
If a CCJ isn’t paid in full within 30 days of the judgement date, it will stay on the company’s credit file for six years. In this case, the company will struggle to access business funding with competitive rates, which can affect its ability to be run successfully.
Access a CCJ List
At Red Flag Alert we compile CCJ reports on every UK business. A quick CCJ search will show you whether a customer has a CCJ and its severity.
Should You Continue Doing Business With a Customer Who Has a CCJ or Bad Credit Rating?
The important thing here is to work out how much the CCJ is likely to affect the customer. If the company is in a strong position to pay off the CCJ, there shouldn’t be much of an issue and you may be able to continue doing business without any problems.
A large multinational, for example, is unlikely to suffer much damage by a CCJ for a few thousand pounds. Likewise, a company with a high amount of cash assets will be in a good position to pay off a CCJ.
Issues are more likely to occur if the company is not well placed to handle the CCJ—for example, if it has low liquidity or a lot of other debts it must pay.
In cases where you believe a CCJ will have a large impact on a company, it can be a good idea to take pre-emptive measures to safeguard against bad debts.
- In extreme cases, this could be in the form of ceasing to do business with the client altogether.
- Alternatively, you can continue to do business but change the terms of your relationship. For example, you could introduce shorter payment terms or even upfront payment.
- You could introduce Retention of Title clauses to your contract if appropriate.
- To make the risk more worthwhile, you can increase margins—for example, by withdrawing preferential rates or raising prices.
All these steps will negate some of the risk associated with working with a company facing the possibility of insolvency.
How you react will depend on how you think the CCJ will affect the business. You need to be able to understand the potential impact of a CCJ and how it fits in with the company’s other financial metrics.
When a CCJ Is an Opportunity
For some businesses, a CCJ can be a sign that it is a good time to start doing business with a company. Subprime lenders, for example, will benefit from knowing when a company gets hit by a CCJ as it may suggest that they will soon need extra cash.
Insolvency practitioners could also benefit from knowing when companies have received CCJs—especially if they have this information alongside other data that shows a company is in poor financial health and might be on the verge of insolvency.
Red Flag Alert Gives You Control Over How You React to Customer CCJs
Red Flag Alert is an essential tool if you want to protect yourself from harm caused by a customer receiving a CCJ.
It does this by informing you when a business receives a CCJ and then placing the CCJ in context with the company’s other financial information. This shows whether the CCJ is likely to impact the business’s ability to pay its other debts, which allows you to make informed decisions about the steps you need to take to protect your business.
Red Flag Alert uses a proprietary algorithm to give every business in the UK a financial health rating. The algorithm has been developed over 13 years and uses detailed financial information like past financial performance, type of business, key financial ratios, fining discipline, debt levels, exposure to bad debt, turnover, employee numbers and of course adverse events like CCJs.
The health rating it produces provides a clear insight into the likelihood of a business falling into insolvency in the next 12 months.
When assessing your clients, Red Flag Alert is the best way to determine the level of risk they pose. Rather than just focusing on whether a customer experiencing a CCJ is likely to harm the business, Red Flag Alert considers a wide range of factors and the financial health rating provides the information you need to make a sound commercial decision.
Beyond this, Red Flag Alert provides several tools that help businesses assess risk:
- Real-time monitoring keeps you up-to-date with the financial risk associated with each of your customers.
- In-depth financial intelligence allows you to look beyond the initial Red Flag rating and make your own judgement about risk.
- The data covers over 6.5 million businesses in the UK. We can help no matter who your customers are.
- The data is updated over 180,000 times every day, ensuring you always have access to the most relevant intelligence.
While you don’t have control over whether a customer receives a CCJ, you do have control over the actions you take following the event. Red Flag Alert helps you avoid being caught unprepared and allows you to make informed decisions about the best way to proceed.
To talk to one of the team about how Red Flag Alert can help you deal with customers that receive a CCJ, get in touch with Richard West on email@example.com or 0344 412 6699.