By Ben Simmons
An increasing number of small and medium sized enterprises are facing cash-flow crises, according to the results of survey carried out by find-a-solicitor service, Contact Law.
Two thirds of debt recovery specialists have noticed a substantial rise in the number of small and medium sized businesses chasing large debts over the past 12 months.
Contact Law, which refers legal enquiries to more than 5,000 solicitors throughout the UK, surveyed more than 300 lawyers specialising in debt recovery for firms. More than a third said they have seen at least a 50% rise in the number of businesses coming to them to chase outstanding debts. Almost all the law firms surveyed had observed at least a 10% rise in the past 12 months.
With small businesses struggling to cope in the current climate and suffering the effects of restricted access to credit, as banks seem increasingly reluctant to lend, late payments can have a hugely damaging effect on company cash-flow.
In terms of average debt that specialists are being asked to recover, 41% are debts between £5,000 and £10,000, with almost one-fifth being asked to recover debts of more than £10,000. And almost a third of debt-recovery solicitors say they have noticed an increase in the individual amounts they are being asked to recover, with just under a quarter (23%) revealing they have seen a 30% increase in the average value of debts.
Even SME owners who turn to solicitors to recover debts will still have to exercise patience before they see any money. For those cases that are successful, more than 36% take six months or more to recover the full debt, with 70% of cases taking up to four months.
When respondents were asked if, over the past 12 months, they had noticed it was taking longer to recover debts, more than half (55%) agreed it was. Four out of ten solicitors (42%) claimed it took around 30-35% longer to recover debts than a year ago. This likely reflects that businesses are struggling, now more than ever, to find the money to pay outstanding invoices.
But not all cases are successful and, depending on the value of debt owed, this can potentially have devastating implications for SMEs that are already walking a financial tightrope. Worryingly, around a third (32%) of debt-recovery solicitors have noticed a rise in the number of unsuccessful cases. And, over the past 12 months more than a third (35%) have seen a rise in the number of debt recovery cases that have progressed to legal proceedings being initiated.
“SMEs are notoriously time poor and chasing payments can be incredibly time consuming and frustrating," says Dan Watkins, Director of Contact Law. "Businesses that have clear payment terms, send invoices out on time and actively chase late payments are doing all they can to keep cash flow moving. However, after that, the responsibility lies with their client or customer to pay the agreed sum on time.
“It’s no coincidence that debt recovery specialists are seeing a massive surge in companies employing their services. The country is going through the worst recession in living memory and the SME community is struggling to keep its head above the water. Unfortunately, the rot caused by late payments spreads from the roots, upwards, affecting the businesses at the top that should otherwise be flourishing.”