Cash Management – clearly still an issue for many SMEs

Here’s a bit of a shocker, new estimates indicate that in the last financial year UK SMEs wrote off a combined total of £5.8 billion in debt. Of the businesses taking part in the analysis one in five admitted to writing off more than £30,000, whilst one in ten waved goodbye to over £100,000.

If these figures aren’t a clear enough indication of the need for a robust credit management policy then it’s difficult to know what is. Even more frightening perhaps is that 40% of the businesses surveyed couldn’t even put a number on the actual balance of their sales ledger.

Can’t pay, won’t pay

There are many reasons why debts become delinquent, some of which are out of the control of the supplier such as formal insolvency of the customer. Indeed 29% of the SMEs involved in generating this data cited that as the reason for the write offs. However, other reasons are often self-inflicted like the fear of chasing overdue invoices out of fear that it will damage a relationship.

It is a difficult conundrum but one that anyone entering into business needs to face up to. The old saying that a sale is not a sale until it’s paid for is bang on, and anyone not heeding the sentiment may as well be giving their products or services away.

Seek and ye shall find

There is of course a simple solution for both the technical issues of insolvency or protracted default and the personal issues of actually getting on the phone or instructing a solicitor.

The invoice finance industry has always offered products that cover all aspects of good credit management. A debt collection service will ensure that regular chasing by telephone and the written word is carried out in a professional manner and always with the client/customer relationship in mind.

Bad debt protection can also offer insurance against insolvent customers or those that are just long overdue. Trading to an agreed credit limit means that a supplier can ship and not worry about getting paid should the worst happen.

A Little knowledge…….

For many SMEs, outsourcing this aspect of their day-to-day operations can prove very beneficial. Not only does it free up a busy business owner’s time, it ensures that the technical aspects are fully covered. And the technical aspects are important; the same survey revealed that two thirds of SME owners involved had very sketchy knowledge of what a N1 Claim Form was for.

By Steve Leeves