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Small businesses hit hard by commercial disputes

New figures released by the FSB (Federation of Small Businesses) reveal that commercial disputes cost SMEs in England and Wales £11.6bn per year. Nearly 75% of that is due to late payment or non-payment by clients.

FSB national chair Mike Cherry stated “The dispute resolution process faced by small businesses in England and Wales is costly and complicated. Billions of pounds are flowing out of small businesses’ pockets as they try to claw back unpaid debts.”

Dealing with debt

According to FSB survey data, 70% of small businesses faced at least one dispute between 2010 and 2015 – and the average small firm is owed £18,000. The cost of recovering these debts for businesses is typically around £17,000.

The government is already acting to introduce new measures to help support small companies in disputes. These include the appointment of a Small Business Commissioner in autumn 2017 and, from April, the requirement that large companies publish information outlining how quickly they paid their suppliers.

Collective action

However, small businesses can also push for change. We recently saw the power of grassroots activity when the 2016 Small Business Saturday generated more than £700m in sales, up 15% from 2015 and 53% from 2013. Based on the FSB’s figures, applying similar energy to addressing late payment practices could yield even bigger returns.

If all SMEs produced quick and clear invoices, which outline payment terms, timelines and potential punitive charges such as the statutory interest of 8% plus the Bank of England base rate after 30 days of non-payment, it would send a strong message to their clients.

There are also a number of tools which can help the process. Automatic invoicing software can send reminders at set dates, and new payment platforms make it easier to accept payment in ways that suit your customers.

Whichever approach you choose, it is important to ensure you have a system in place to chase people who repeatedly refuse to pay their debts. In 2016 alone, £5.8bn of unpaid debt was written off by SMEs; recouping just over 20% of that amount would already contribute more than Small Business Saturday.

To find out more about maintaining a healthy cash flow as an SME, contact a Dukes Bailiffs adviser today.

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