Sunday, 04 December 2016 13:55

Small Businesses Haemorrhaging £50bn a Year in Unpaid Work

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A new report has confirmed the shocking impact that unpaid B2B debts have on the UK economy.

A survey of SMEs by Amicus Commercial Finance found that the average small business in the UK writes off a staggering £12,000 each year in unpaid invoices, mainly from larger customers and clients.

Taken across the entire economy, that adds up to an unbelievable £50bn a year in lost revenue - or £134 million lost to bad debt every single day.

Three quarters of the businesses surveyed said they had written off debts entirely in the past year. Amongst the worst affected group, businesses with 50 to 249 employees, a quarter of all invoices are not being paid on time, if at all.

 

 

The knock-on effects this is having on cashflow and growth underlines exactly why effective credit control and debt collection procedures are such a critical issue in the current economic climate. With two-fifths of small businesses say they have run into problems with their own suppliers as a result of not having cash available from outstanding debts owed them. A fifth say they have lost other contracts because of cashflow problems. And a quarter said that the financial difficulties unpaid invoices put them in led to them struggling to pay staff on time.

Recovering Debt

Clearly this level of loss is unsustainable, both for the individual businesses affected and for the wider economy. Small businesses need to be supported both in recovering debts owed to them, and in putting in measures to protect themselves.

When it becomes obvious that a client will not, or cannot pay, small business owners can find themselves in a daunting situation. Apart from keeping up the repeated phone calls and unanswered emails, what can you do? Especially if you debtor is a larger business, it can feel like David taking on Goliath, but without the slingshot he used to take Goliath down.

Any business which finds itself under pressure from unpaid debts should take steps to alleviate the problem, the first step in this is to contact a reputable and experienced debt recovery specialist like Safe Collections. We offer a professional service designed specifically to stop businesses having to face financial and operating difficulties because they have not been paid in full or on time.

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Safe Collections was incorporated in 1984 and we have more than 30 years’ experience recovering debts quickly, ethically and effectively so you don’t have to do without the funds your business needs to thrive.

As with most things, prevention is just as important as the cure when it comes to stamping out B2B debts. With the best will in the world, debt recovery alone cannot bring back £50bn a year in unpaid bills, nor can it stop the wider cash flow problems caused by endemic late payments.

Small business can help protect themselves by putting in place effective credit control and management strategies. Amongst the things we would strongly recommend are:

  • Use cash flow forecasts. Don’t wait until money hasn’t come in to realise you have a problem. Forewarned is forearmed, as they say, and cash flow forecasts allow you to mitigate for worst case scenarios ahead of time.
  • Negotiate shorter payment terms. Many SMEs argue that long payment terms set by customers are just a fact of life, but with the right support and a firm but fair approach, you can reduce your reliance on credit by insisting on faster payments and shorter credit periods.
  • Introduce Stop Lists and other penalties. If a customer continues to break payment terms, it is time to take action. Use a Stop List to withhold services and goods, or demand pro-forma payments until unpaid invoices are settled.
  • Carry out credit checks. One of the best ways to avoid bad debts is to avoid bad debtors and high risk customers. Purchasing credit reports on prospective clients so you know if they have any payment skeletons in their closet which should set alarm bells ringing.

For in-depth credit management advice, or to find out more about our affordable credit control solutions for SMEs, why not contact us today.

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