Beware of bad debt

A survey of UK SMEs found that over one in three had been unaware of the debt of a business partner. Thirty two percent said they had been lied to about the state of a company’s finances and 22 per cent had entered into a partnership with a financially unsound partner.

Seventy seven per cent of the SMEs had not studied a business partner’s company credit report. Company credit reports detail the financial health of a business and expose county court judgements – legal notices that a company failed to pay a debt.

“We advise business to use a company credit report to find out whether a potential business partner can service its debts, pay its suppliers on time, and maintain stability at board level,” said Dominic Blackburn of 192.com.

Asked what would most concern them in a company credit report, 70 per cent of the poll said they would be troubled by outstanding charges against a company. 65 per cent would be concerned by county court judgments, and over half would be put off by a company’s poor working capital. Forty five per cent would be troubled by a company changing its name several times.

Twenty five per cent of the survey had commissioned a supplier who had let them down. When hiring a supplier, 40 per cent of the survey were interested in their credit worthiness when starting a long-term relationship. A quarter valued credit worthiness when the supplier was a high value contract.

Employees are also becoming cautious when choosing an employer. A survey of thousands of employees carried out by the recruitment company, Huntress showed one in ten hadn’t accepted a job offer from an SME due to its financial record. Just under half of the employees said they would always check out the financial strength of an employer and over one in 10 choose employers more carefully since the downturn.

When asked which Government scheme is most helpful for employers, the SMEs considered flexible working and subsidised training to be more important than benefits for working parents and the Government’s national apprenticeships service. Over 30 per cent of the poll were confident of surviving the recession.

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