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Prompt Payment? What can SMEs do?
Speaking at the CCR-i event on 1st October 2013, Rt Hon Michael Meacher (MP for Oldham West & Royton and Member of the All Party Inquiry in to Late Payment in SME’s stated;
• £36 billion is owed to SME’s (50% increase on the previous year) – this sum is equivalent to two thirds of the total lending to SME’s by lenders;
• Whilst the government has sought to tackle the issue of late payment through the voluntary Prompt Payment Code, only one fifth of large Companies have signed up to the Code with many Companies refusing to sign up or worse, extending their “average days for payment” on the basis that they can.
Add in to the mix the statistics that 1 / 10 Companies (approximately 230,000 Companies) is a Zombie trading insolvent and you realise that aged debt represents a real issue for SME’s in the UK.
So what can you do as an SME to protect your position?
• The key is to truly know your customer – are you trading with a Limited Company? If so, what is the full name of the Limited Company? If not a Limited Company, are you trading with a Partnership or Sole Trader?
• If you start trading with a Limited Company, “health check” the Company using software checking the Companies financial status. If the Company seems to represent a risk, ask for a Personal Guarantee if appropriate, or if that is not appropriate, limit the credit limit applied to the account.
• If you are trading with a limited Company, monitor the Company throughout the life of the account. Many systems that allow you to health check a limited company provide a monitoring reporting system. This will alert you to any detrimental changes in the Company. This will in turn allow you to take a view regarding future trading with that customer.
• Actively chase debtors. When to do this is sometimes difficult to assess where you hope for an ongoing relationship with the customer. However, the important thing to remember is that the longer the debt is unpaid, the greater the risk that your customer will cease trading. Companies facing financial difficulties are often juggling creditors and therefore, regularly chasing your debtors will help to push you to the front of the queue.
There are lots of Companies that are able to continue to trade because of low interest rates. These companies are those juggling their creditors. The key is to push your business to the front of the queue to increase a chance of payment whilst the business is still trading. Otherwise, you may find yourself at the back of the queue (as an unsecured creditor) following insolvency.
For further information about our award winning debt recovery service, where costs start at £2.00 plus VAT for a letter to your debtor, please contact our Maria Koureas-Jones on email@example.com / 01992 558411.