The average smaller business in the UK writes off £40,000 a year in unpaid debts, according to the latest research.
The research by Bibby Financial Services showed that small to medium-sized businesses (SMEs) saw the value of bad debt (money owed that has to be written off) surge by 127 per cent in the first two quarters of the current financial year.
More than 40 per cent of SMEs in the UK say they have suffered from non-payment in the last year, with 58 per cent seeing at least one of their suppliers going bust and 56 per cent experiencing the insolvency of at least one customer.
Bad debt can lead to staff cuts, delayed investment plans and – at worst – insolvency for many businesses – creating significant disruption for the supply chains of many SMEs.
When launching its new Fair Payment Code in the autumn, the UK Government estimated that late payments and bad debt leads to the closure of 50,000 SMEs a year.
New legislation will require all large businesses to include payment reporting in their annual reports – putting the onus on them to provide clarity about how they treat small firms.
A new calendar year is when unpaid debts can hit hardest as a variety of other bills, not least taxes, need to be paid in January.
Newport-based law firm Bellavia & Associates specialises in debt recovery.
Managing Director Zep Bellavia said:
“Statistics show there is a drop-off in new debt recovery actions over the Christmas period, perhaps because it is the season of goodwill.
“But cash is king for businesses, particularly smaller ones, and the start of a new year is a good time to be tighter and better with credit control and recovering debts – not least because January is the month in which we see many business failures.
“Many people think using a lawyer to recover debts is expensive. But nothing is more expensive than bad debt, and we know all there is to know about recovering cash.
“Many of our clients do not end up paying for our services as we recover over and above the original debt.
“Our specialist services such as freezing third party bank accounts are relatively inexpensive and provide a quick means of getting paid or at least of providing up to date information that can inform the debt recovery process. We love freezing third party payments to satisfy judgements and our clients love it too.
“Credit is now more difficult to come by and credit ratings are more important than they were 10 years ago. That means CCJs (county court judgements) can have a far more detrimental effect on debtors.
“We find that many debtors pay up soon after we have contacted them on behalf of our clients because they don’t want court judgements against their names or to pay the extras that we can charge them.
“We also deliver health checks on the credit control and debt recovery processes of businesses.
“I’d advise businesses wanting to improve their cashflow to pick up the phone and see how we can help.”
