Member Article

Debt crisis leaves UK’s most vulnerable businesses in financial peril

Each UK SME was burdened with an average trade debt of £1.3m during the last financial year, suggesting that despite the economic upturn, the strain on Britain’s smallest businesses remains severe.

Micro-SMEs with 1-9 staff and a turnover of less than £2m were proportionately the hardest hit, with each contending with £68,000 worth of trade debt and 12% in severe debt trouble.

The findings, by online commercial debt recovery law firm Debt Guard Solicitors, were based on account details submitted to Companies House by over 9,100 SMEs.

Stifling hopes of a top-down economic recovery, the overall indebtedness of the UK SME market reached £6.3tn[2] in 2013/14, with late payment a major contributory factor.

A key research finding, according to Debt Guard, was that 12% of UK micro-businesses had dangerously high trade debt levels that reached one third of annual turnover. In contrast, just 5% of larger SMEs were in a similar risky financial situation. Of all these high risk firms, 43% are located in London.

Highlighting the scale of the financial squeeze on Britain’s most vulnerable businesses, micro-SMEs each averaged £68,000 worth of trade debt, equating to 19% of turnover. Although larger SMEs averaged a higher trade debt of £2.5m, this was at a more manageable 15% of turnover.

Mark Burgess, Chief Operating Officer at Debt Guard Solicitors, said: “This research highlights there is a highly varied national trade debt picture emerging within the SME marketplace, created by unpaid and outstanding invoices. In the past, SMEs have often been lumped together when it comes to debt management, but it is clear that micro-SMEs in particular need much greater support in this respect.

“As the backbone of the UK economy, many of these micro-firms are suffering from big trade debt issues with the threat of closure a real danger. Our message to all SMEs in this position is, ‘don’t write off your debt’, look at legal ways to professionally recover it as, by improving credit flow, this will help put your business on a more stable financial footing.”

The average time it took for SMEs to receive payment from customers, known as debtor days, was 63 days for micro-SMEs, 47 days for small companies and 40 days for medium-sized companies. This is beyond the typical 30-day agreements and draws attention to the problem of late payment, particularly for Micro-SMEs.

Trade debt stands for money owed to a business - including current invoices and overdue payments - for goods and services supplied to customers throughout a financial year.

Debt Guard Solicitors, part of Ascent Performance Group, is a customer-controlled internet only debt recovery legal service targeted at the SME marketplace. Compared to alternative debt collection agencies, there is no registration fee or hidden charges, no commission on recovered debt and no expensive outsourcing of legal services.

This was posted in Bdaily's Members' News section by Tom Underwood .