Small businesses chasing late payments with CCJs
Small businesses in the UK are increasingly turning to legal measures in an attempt to reclaim bad debt, new figures suggest.
The study, by fintech start-up Ormsby Street, the company behind free credit-checking tool CreditHQ, found that the number of County Court Judgements (CCJs) brought by SMEs against late-paying customers rose by almost a quarter (23%) in the second half of 2015.
Analysis of the company’s 27,000 companies also found that the average value of a CCJ brought by UK SMEs in 2015 was £4,619. Some firms may be owed far more than that if they were chasing multiple late payments and bad debts.
The results come in the wake of Tesco being criticised for delaying payments to its suppliers. Ombudsman the Grocery Code Adjudicator found that the supermarket had “knowingly delayed paying money to suppliers in order to improve its own financial position”.
The Zurich SME Risk Index, meanwhile, shows that more than half (53%) of SMEs in the UK were owed money from late payments, which could add up to as much as £255 billion outstanding.
Late payments are becoming an increasingly serious problem for many of the UK’s SMEs. The disruption to cash-flow can cause severe financial difficulties and in some cases can lead to business insolvency if companies are unable to seek alternative finance or find a solution to the problems faced.
More than two thirds (67%) of those quizzed in the Zurich survey agreed that late payments are leading to some SMEs being forced to close down. Some 41% reported that late payments have had a significant impact on their own business’ cash flow, affecting a number of key business operations.
The survey also found that 20% of those businesses that were owed late payments were owed more than £25,000. Almost one in ten (8%) were owed in excess of £100,000 and 2,600 SMEs in the UK were owed £1 million or more.
New government measures include a mediation service and the creation of the Small Business Commissioner, a new authority charged with addressing power imbalances between small and large firms, including late payments and cases of 'supply chain bullying'.
By Phil Smith