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Payment Delays and Small Businesses

businessAs if, even in this recovering economic climate, running an SME wasn’t challenging enough, new analysis of Companies House data has revealed that micro businesses in the UK are owed 19% of their turnover in trade debt.

Trade debt is defined as the money owed to a business, including current invoices and overdue payments, for goods and services supplied to their customers throughout a financial year.

As any small business owner will know there is a fine line between standing up for your rights to receive timely and full payment and losing your customer base. This ‘balance’ is an everyday hazard for SMEs, too small to afford the loss but seen as too big for a customer to worry about paying quickly.

Micro Businesses £68k of Trade Debt

The survey by Debt Guard Solicitors found that micro businesses have on average £68,000 of trade debt or 19% of turnover.

Of this number, the survey found that as many as 12% of micro businesses were facing serious challenges with trade debt levels at more than 1/3 of turnover, with North East and Yorkshire based businesses being the hardest hit. Regional stereotypes need not apply!

On top of this the average debtor days for micro businesses were found to be a scarcely affordable 63 days against a typical payment cycle of 30 days resulting in additional financing being required to enable businesses to continue operating whilst the owed income is awaited.

Small Businesses £2.5m of Trade Debt

Small businesses were found to have on average £2.5m of trade debt or a barely more manageable 15% of turnover. Small businesses did fare a little better in that only 5% were found to be facing more than 1/3 of turnover as trade debt with debtor days falling to 47, however this was hardly a cause for celebration.

For medium sized businesses, the trade debt average fell to 13% of turnover but naturally given the size of business the average value was highest at £3.7m. Medium sized businesses also fared far better with debtor days of just 40 nearly one month better than that experienced by micro businesses.

Prompt Payment Code

Vince Cable recently announced moves to strengthen the currently voluntary Prompt Payment Code, and the requirement for the publishing of payment terms to “name and shame” transgressors will be welcomed by many.

However more clearly needs to be done to reduce the pressure, especially for micro businesses, if we are not going to see a series of unnecessary failures before real action against miscreants is delivered.

In a climate of poor payment performance, cost management is key. Switching business energy supplier or simply getting a better deal from you current provider can provide huge savings and minimal effort. Whilst we can’t improve your debtor days, Business Juice can certainly help soothe their impact.

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