Failure to chase bad debts cost UK small businesses £6 billion in 2015/16

Small businesses across the UK lost nearly £6 billion through a failure to chase bad debts during the 2015/2016 financial year, new research has revealed.

According to Direct Line, small businesses wrote off £5.8 billion of bad debts in that period, despite research suggesting that a growing number of firms are failing to survive for more than five years.

Nick Breton, Direct Line’s Head of Business, described the results as “alarming”, highlighting that it means a large of portion of work goes unrewarded when firms are reluctant to chase debts.

Based on the research, one in five small businesses revealed they wrote off debt, and of those firms, the average total wiped from the slate was just over £31,000.

One in ten firms that were chasing finances said they had stopped chasing outstanding balances of £100,000 or more.

Debts were written off for a variety of reasons, but the most common – cited by 29% of those questioned – was because the customer had become insolvent.

On a further 17% of occasions, businesses had written off debt on the basis that they did not think the customer had sufficient funds to pay.

Meanwhile 10% feared for their business relationship with their customers should they have to chase payment, and so chose against doing so.

Analysis from Ormsby Street highlights that four in ten businesses fail to pass the five year mark, mainly due to poor cash management.

Although it might be viewed as awkward for firms to chase money that they are owed, it is essential part of them being able to continue trading.

Failing to chase outstanding balances places pressure on finances and could ultimately result in insolvency or the need for a company voluntary arrangement.

Other reasons noted for failing to chase unpaid debts were a lack of knowledge regarding the process and a lack of time to do it – this is particularly true at companies with lower staff numbers.

Smaller firms should also look to ensure that they are aware of their legal position when it comes to recouping money that they are owed.

By Phil Smith

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