July 04, 2014
Despite the fact that UK SMEs are owed billions in late payments, new research from Satago has found that 32% of small businesses are reluctant to chase bad debt.
Four in five (81%) of these firms are reluctant to chase debtors because they find the process uncomfortable, while 19% are afraid of antagonising their customers.
As a result, 34% of UK SMEs write off thousands of pounds of bad debt every year. And the research shows that government and industry action on late payment has had very little effect – 24% of small firms surveyed said the issue of late payments has actually deteriorated over the past two years. Only 17% believe there has been an improvement.
Despite a widespread unwillingness to pursue late payers, most small businesses recognise that taking action would deliver results: 30% believe they could recover more debt if they were more proactive, and 13% of those who have had bad debt believe they could recover more than 50% if they chased harder.
A lack of process is a key reason for failing to chase payment, says the report. 77% of firms do not have a person or a procedure in place for chasing bad debt, and the vast majority of firms have no established escalation process for late payments.
SMEs use a variety of tactics for chasing debtors including phone calls, emails and legal action. However, only 15% have used legal provisions (under late payment regulations) to charge customers for late payment.
Steven Renwick, founder and CEO at Satago, said: "SMEs feel uncomfortable chasing, do not want to annoy customers and a majority do not have a process in place to deal with the situation. The current supplier power structure means that big business is in a position to take advantage of SME and freelance suppliers. SMEs must recognise that proactivity can help them deal with late payers."