Trade debt plaguing UK SMEs

UK SMEs faced average trade debts of £1.3m in the last financial year, according to new research, suggesting Britain’s businesses are far from in the clear.


The economic recovery is gaining momentum but micro-SMEs – those with ten staff or less – were particularly hard hit, contending with an average of £68,000 of trade debt.


Of those, some 12% were reportedly in severe debt trouble with a need to consider their financial options and even the possibility of a business turnaround.


In the cases of these businesses, trade debt levels reached one third of the company’s annual turnover, compared to 5% of cases involving larger SMEs.


Law firm Debt Guard Solicitors based their findings on details submitted to Companies House from more than 9,100 SMEs in the UK.


According to their research, UK SMEs are facing £6.3 trillion of debt in 2013/14 with late payments a leading factor.


Trade debt is defined an anything that is owed to a business – such as invoices or overdue payments – for any goods and services that have been supplied.


Of all the firms deemed to be high risk (those where trade debt reached a third of annual turnover) some 44% were based in London.


The £68,000 of trade debt seen by micro-SMEs equated to around 19% of total turnover, compared to larger SMEs with higher trade debt of £2.5m equating to 15% of turnover.


“This research highlights there is a highly varied national trade debt picture emerging within the SME market place, created by unpaid and outstanding invoices,” explained Mark Burgess, chief operating office at Debt Guard.


He added that micro-SMEs are especially in need of assistance as their levels of trade debt mean “the threat of closure is a real danger”.


It took an average of 63 days for micro-SMEs to receive payments, compared to 47 for small companies and 40 for medium-sized companies.


However these time frames are all beyond a typical 30-day agreement and highlight the problem that SMEs face when tackling late payments, especially those on a micro-scale.


By Phil Smith


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