Contact Law surveyed more than 300 lawyers specialising in debt recovery for SMEs and more than a third said they have seen at least a 50 per cent rise in the number of SMEs coming to them to chase outstanding debts. Almost all the law firms surveyed had observed at least a 10 per cent rise in the past 12 months.
With small businesses struggling to cope in the current climate and suffering the effects of restricted access to credit, as banks seem increasingly reluctant to lend, late payments can have a hugely damaging effect on company cashflow.
In terms of average debt that specialists are being asked to recover, 41 per cent are debts between £5,000 and £10,000, with almost one-fifth are reporting that they are being asked to recover debts of more than £10,000.
Even SME owners who turn to solicitors to recover debts will still have to exercise patience before they see any money. For those cases that are successful, more than 36 per cent take six months or more to recover the full debt.
When respondents were asked if, over the past 12 months, they had noticed it was taking longer to recover debts, more than half agreed it was.
But not all cases are successful and, depending on the value of debt owed, this can potentially have devastating implications for SMEs that are already walking a financial tightrope. Worryingly, around a third of debt-recovery solicitors have noticed a rise in the number of unsuccessful cases. And, over the past 12 months more than a third have seen a rise in the number of debt recovery cases that have progressed to legal proceedings being initiated.
Dan Watkins, Director of Contact Law, comments: “SMEs are notoriously time poor and chasing payments can be incredibly time consuming and frustrating. Businesses that have clear payment terms, send invoices out on time and actively chase late payments are doing all they can to keep cash flow moving. However, after that, the responsibility lies with their client or customer to pay the agreed sum on time.
“It’s no coincidence that debt recovery specialists are seeing a massive surge in companies employing their services. The country is going through the worst recession in living memory and the SME community is struggling to keep its head above the water. Unfortunately, the rot caused by late payments spreads from the roots, upwards, affecting the businesses at the top that should otherwise be flourishing.”