By Claire west, Fresh Business Thinking
According to new findings published today by Experian®, the global information services company, three-quarters of small and medium sized enterprises (SMEs) have lost money as a result of a customer becoming insolvent.
Experian surveyed 600 SMEs to better understand the impact of customer insolvencies in the supply chain and found that in the last five years, 76 per cent of SMEs have lost money as a result of customers failing. Nearly a fifth (19 per cent) of these businesses each lost between £5,000 - £10,000, while a staggering 35 per cent lost over £10,000 over five years.
When asked how often credit checks were carried out:
• 68 per cent of SME owners said that they did check their customers’ and suppliers’ credit ratings at least once a year
• 24 per cent admitted that they only credit checked new customers and didn’t carry out on-going checks
• 38 per cent had been running a business for over two years but had only just started carrying out regular checks
• 34 per cent of business owners only started monitoring suppliers after they had already lost money.
Ade Potts, Managing Director, Experian’s SME business, UK&I, said: “Although over half of SME owners said that they did check their customers’ and suppliers’ credit ratings once a year, this is not often enough to identify potential problems. Waiting until you’ve lost money to do credit checks is a bit like shutting the stable door after the horse has bolted. Unless businesses check the credit status of their customers at least once every six months, they risk exposing themselves to further loss.
“The rate of deterioration is far quicker for companies in today’s climate, so the sooner you can spot the signs of financial stress, the sooner you can react. On-going monitoring, addressing financial issues such as late payment of invoices head-on and not relying on one big customer or supplier will help lessen the risk of further losses as a result of insolvencies.”