Could reluctance to chase debts be hindering SMEs?
One in three SMEs are reluctant to chase debts, according to new research from Satago – despite the fact that more than £1 billion is owed in late payments.
Of those affected businesses, the automated credit control service revealed that 81% find the process uncomfortable, while 19% are worried it will irritate customers.
It means SMEs could be writing off thousands of pounds of bad debt every single year and government and industry intervention has done little to help, it is claimed.
A quarter of SMEs questioned said that the issue had got worse in the last two years while only 17% said they felt there had been an improvement.
The biggest issue for SMEs is the impact of late payments on their finances, as those which affect the bottom line of the business can cause far greater problems in the long-term.
If left for a prolonged period, the issues can worsen which opens up the prospect of restructuring procedures being required to rectify the situation.
Insolvency is a final resort, but if finances are not available to cover bills then the selling of assets or potential administration could at least keep the company trading.
The value of turning to insolvency practitioners
This does require early action though, as corporate insolvency firms will need enough time to be able to act to overcome the issues.
Businesses do recognise the effects of late payments, while 30% believe a more proactive approach would help them recover more debt.
Meanwhile, 13% of companies that have previously experienced bad debt believe they could have recovered more than 50% had they chased harder.
A lack of processes could be a stumbling block, as 77% of businesses did not have a person or procedure in place for chasing money that they were owed.
Techniques for chasing late payments can vary, but the simplest methods often include telephone calls, emails and the prospect of legal action.
Interestingly, only 15% of businesses will use late payment regulations to charge customers extra for paying late.
While chasing late payments could provoke customers, the financial aspects of a business have to be put at the forefront of operations – it could potentially be the difference between success and failure.
By Phil Smith