July 04, 2014 - Rachel Miller

One in three SMEs "reluctant" to chase bad debt

One in three SMEs "reluctant" to chase bad debtDespite 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."

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