Bad debt is costing small businesses in the UK £3.6bn a year, according to research released today.
The rising cost of late payments was revealed in a survey by Bibby Financial Services. In addition to the financial damage, it also found that an estimated 286 million man-hours are wasted chasing late payers.
The news will come as no surprise to many small businesses, which have seen the average time taken for their business customers to make payments increase to 54 days in 2005, according to credit management service provider Intrum Justitia.
At a time when business failures are increasing, the survey suggests that many small businesses are not in a position to deal with bad debt. A full 47% of small firms have no provisions in place should unexpected debt arise.
Out of the 53% of small businesses that said they did have plans in case of bad debt, 15 % of owners and managers said they would rely on personal savings, and 34% would rely purely on the threat of legal action.
A further 27% said they would use their bank overdraft facility, leading to the possibility of higher bank charges. Overdraft debt for small businesses had risen to £9.1m by June 2006, figures from the British Bankers Association have shown.
David Robertson, chief executive of Bibby Financial Services, said:
“Given that a lack of foresight and planning could lead to a real threat of business failure, reviewing provisions in place should be a matter of priority for small business owners and managers across the country.”
© Crimson Business Ltd. 2006
