New research from financial data service provider Ormsby Street indicates that more SMEs are being compelled to resort to court action to collect outstanding debts. What's behind this trend, and how will business owners be affected?
The rise in CCJs
Although typically seen as a measure of last resort, the number of small firms applying for County Court Judgments (CCJs) has increased steadily in recent months. The latest data from Ormsby Street shows a 23% increase in actions for the second half of 2015 when compared with the first half of the year.
Perhaps even more concerning is the fact that the average sum claimed was almost £5,000 – a significant amount for smaller companies. This increase may be partly due to a culture of late payment that has become more and more prevalent, with an estimated £225 billion owed to SMEs in unpaid bills.
The underlying problem
Zurich's SME Risk Index shows that over half of UK SMEs are experiencing problems with late payments. While it seems the number of businesses filing CCJs has risen, many firms are reluctant to pursue court action. This is not only because of the time and effort involved, but also for fear of alienating future custom. Additionally, it can be difficult for SMEs to accurately calculate the true cost of late payments to their business, and the total time spent chasing them.
Overdue debts cause well-intentioned SMEs to start becoming late payers themselves, harming the professional relationships they are trying to build. Many small businesses only have 60 days worth of cash available at any one time, resulting in limited leeway for late payment. Indeed, 41% of SMEs state that they suffer cash flow problems as a result of customers not paying their bills on time.
Court action costs firms time, money and the potential loss of client goodwill. Additionally, County Court representatives have limited enforcement powers, which can make it difficult to collect outstanding sums even once businesses have obtained a CCJ. It's therefore preferable to avoid the necessity of court action in the first place.
If you're an SME owner looking to collect outstanding debts while avoiding court action, ethical Enforcement Agents such as Dukes Bailiffs can help – contact us today to discuss your options.