Small business payment crisis getting worse

The late payment crisis impacting on small and medium-sized enterprises is getting worse, according to Mark Burgess, chief operating officer at Debt Guard Solicitors. An AccountingWEB article records that the firm carried out research through Experian to understand what the market looked like. The research revealed SMEs were owed in total £55bn from debtors. Burgess said it was a growing problem and that since 2013 the amount owed has actually gone up by 52%.

Speaking to AccountingWeb, Mr Burgess said:

As a country we’ve not solved the lending crisis and most businesses still don’t have access to funds. With all the restrictions banks have on lending, people are just keeping hold of cash in their business and one of the easiest ways of doing this is to pay your invoices late. The bigger companies hold on to their money for longer and it’s the smaller companies that suffer most.

Burgess told AccountingWEB that the average SME was owed £11,000 in overdue payments and that one in five SMEs was owed more £30,000. He added that one in five corporate insolvencies happened where late payment by customers was quoted as a primary reason for the insolvency. He said the problem was most acute at the smaller end of the market where SMEs were getting hit by growing debt problems.

On the role of the accountant in all this, helping clients recoup debt could be seen as a value added service. Mr Burgess commented:

If the client’s bills are getting paid quicker, then I can guess that the accountant gets paid quicker as well, and will have fewer problems to deal with if or when that client goes bust.

Small businesses can be helped by accountants to recover money they are owed from customers who are late on paying invoices. Micro-SME and sole traders who are particularly vulnerable to late payment, which has the impact of damaging already precarious cash flow, can be helped to pursue the legal route. A straightforward ‘letter before action’ costs little to produce and could then progress to taking court action, county court judgements and finally enforcement.

Commenting further, Mr Burgess said:

The court fees are a trigger for some people. Larger companies don’t expect to receive solicitor letters from smaller companies who now have an option to use a legal service. Using the legal route rather than debt collection is a much more cost effective way of doing it.