ARAG on the challenges still facing SMEs

Authored by ARAG Claims Operations Manager Heather Wilmot

Conversations about the cost-of-living crisis and surging energy bills understandably tend to zero in on the impact these are having on individuals and families – as do the various assistance packages put in place to offset these challenges. However, the message from Heather Wilmot (pictured) claims operations manager at ARAG is clear – many businesses are struggling too.

There will be a raft of companies that will be unable to keep trading as a result of current market conditions, she said, but many more will feel the knock-on effects in the form of bad debts, contract and employment disputes. It’s a concern compounded by the ‘zombie companies’ which only survived the COVID period due to various government supports and schemes. Data provided by the Insolvency Service reveals that the number of businesses going into insolvency rose significantly in H1 2022 – compared to the most recent ‘normal’ half-year on record, 2019.

“Unfortunately, that’s on track to increase for the remainder of this year, and possibly into 2024,” she said. “The general squeeze on commercial finances from input, energy and borrowing costs to customers with less to spend is taking its toll. We see the consequences in the numbers and nature of the legal advice calls we get from businesses.”

“Our commercial policyholders are inevitably having to chase late payments and some are having to make redundancies. We also see a rise in contract disputes between businesses, either because one company is struggling to fulfil their obligations or the dispute is simply masking a cashflow problem. Whatever the issue, handling it in the right, legal way is often the difference between resolving it or creating more trouble.”

That’s where ARAG’s suite of legal expenses insurance (LEI) products comes into its own, Wilmot said, because policyholders are supported through the often complex and volatile legal process. Businesses are now having to walk a very tricky tightrope of not jeopardising their business relationships while also having to keep their own lights on.

“When you have strong relationships with your commercial clients, it can be tempting to give them extra time but, if you can’t afford to do that, it’s going to have a massive impact on your own business as well,” she said. “We understand that people may not want to go down the claims route if it can be avoided, which is why we help policyholders follow a tight debt recovery process.

“We’ve recently relaunched our legal services platform to integrate it much more closely with the legal advice helpline. This is particularly helpful for things like recovering commercial debts, as our legal advisors can guide policyholders to the right documents and even help them through the process of creating a formal letter. Often, just the fact that a clear, legal process is being followed is enough to get an invoice to the top of the pile.”

ARAG’s message to the market and to the brokers who support its policyholders is clear - in times like these, it’s more important than ever to have some sort of legal protection. It’s not just about chasing debts or getting clarity on your position if there’s a genuine dispute. If legal action is necessary to resolve a problem, the cost of engaging a solicitor could easily outweigh the value of the claim you’re pursuing.

Unfortunately, she said, making staff redundant is another legal minefield that many SMEs may have to navigate, in the coming months. This isn’t a process that most business owners should undertake without professional help.

“It’s particularly difficult because companies are typically only making redundancies because they need to cut costs, but getting it wrong can end up being much more expensive,” she said. “So often you’ll hear about a business that had to make a small number of redundancies, but simply ended up unfairly dismissing the people in those roles, because a proper process wasn’t followed. The last thing any SME needs now, is an employment tribunal claim that could weigh over them for years, compounded further by current court backlogs.”

ARAG and its broker partners are aware that the tough economic conditions are forcing businesses to cut corners – with non-mandated insurance coverages often the first to come under scrutiny. But Wilmot emphasises that non-mandated does not mean non-essential.

“LEI might seem like an easy cover to cut,” she said. “But, in these times, it might be one of the most beneficial things you could spend your money on. Not just for the coverage itself and the protection it offers but also the range of support and services included, services most small businesses could not otherwise hope to afford.”

ARAG’s legal advice helpline is the most obvious of these ‘day-one’ policy benefits, and allows all ARAG policyholders to call a lawyer on any legal matter affecting the business. The helpline also covers tax advice, she said, providing an easy way to get quick answers to questions about anything from VAT to PAYE.

Perhaps less well-known is the counselling helpline, she said, available to employees throughout the insured business, that staff can call upon to discuss any personal issue that may be causing them concern. Additional benefits also include support from ARAG’s Legal Services Website with drafting key documents including debt recovery letters and payment plans that prevent the escalation of a claim.

“Making use of any of these additional services would probably justify the LEI premium alone, for most businesses.” added Wilmot “Legal expenses insurance isn’t something any SME should really do without at the moment, but we find it is the benefits policyholders can access from day-one, even if they never have to make a claim, that keeps LEI on the list of essential covers.”

Find out more about the full range of LEI products and services available from ARAG today