30 Per Cent of all Small Businesses in the Thames Valley Face Closure - Says Report - 24 May 1999
Nearly 30 per cent of small businesses could face closure in the future if debts are not paid on time according to new research out today.The worrying statistic could be eased if more small businesses were aware of new protective laws introduced by the Government last year to help speed up payments - at the moment a fifth of all small businesses have to wait a year to receive payment on some of their invoices.
On top of this 57 per cent of small businesses are forced to chase payment on a regular basis which represents around 10 per cent of the working week and millions of pounds loss across the UK.
The research commissioned by Business Pages’ Small Business Watch (SBW) was conducted across 1200 UK companies who employ less than 100 people or have a turnover under £5 million.
The research showed that 51 per cent of small businesses in the Thames Valley are unaware of their rights to charge 8 per cent interest on outstanding invoices under the 1998 Commercial Debts (Interest) Act.
40 per cent of those aware would use the Act to ensure prompt payment from customers. The fear of damaging contractual relations with customers was the main reason why many companies would not charge interest on unpaid bills.
The findings highlight that in the interest of the UK economy the Government should be doing more to educate small businesses as to what the Act can do for them.
Equally small businesses should adopt better internal credit management systems. Only 45 per cent of small businesses check credit worthiness and 31 per cent rarely check before commencing a relationship with a customer.
With cash-flow tight and an ever increasing strain to keep companies in the black, SBW is advising small businesses to develop seven steps to help reduce bad debts. These include:
Do credit checks on customers before commencing a business relationship
Do everything possible to help foster good customer relations
Get to know the customer’s accounts department as well as its buyers
Check invoices for accuracy before mailing them out
Understand the customer’s payment system and the dates of billing runs
Check that the invoice has been accepted before the billing run
Give priority to responding to a customer’s invoice queries
Nationally 83 per cent of respondents were fully in favour of the legislation and 60 per cent of those chasing late payment would use the Act to benefit them.
Surprisingly, businesses with an annual turnover of under £250,000 were less likely to be affected by late payment (59 per cent) than those with turnover in excess of £2 million. This could be explained by greater personal contact helping closer relationships with the customer.
Phil Rowden, Product Manager at Business Pages said: "The research very clearly shows that the new legislation can effectively change the way we do business. More than 18,000 small businesses advertise in our directories and they should be more aware of the Act and how it affects them."
"Reassuringly, bigger companies appear to be doing more to comply with the legislation and claim to be more vigilant in ensuring suppliers are paid on time. This is helping to improve good business practice. We will continue to monitor the situation."
