'I ask clients for a 50% deposit to book a job': Third of small firms forced to write off thousands in unpaid bills each year



Small businesses in the UK are owed billions of pounds in late payments, but new research has shown that a third are reluctant to chase slow-paying customers because they are worried about upsetting them or feel embarrassed.



Four in five, or 81 per cent, say they avoid chasing debtors because they find the process 'uncomfortable', while one in five, or 19 per cent, are afraid of antagonising customers, according to a study by automated credit control service Satago.



This is a dangerous trend, as more than a third - 34 per cent - of UK SMEs say they write off thousands of pounds of bad debt every year, the report shows.

Small business owner: Allison Fredericks asks clients to pay a 50 per cent deposit to try to avoid problems

I ASK CLIENTS FOR A 50% DEPOSIT

Allison Fredericks, CEO of My Clear Space, a London-based de-cluttering and home organisation company, has attempted to structure the terms of her of business to reduce debt impact. She says: 'I ask clients to pay a 50 per cent deposit to book the job so that at least gives me a bit of security upfront as well as sign a terms of business agreeing to pay the remainder. I ask for the remaining 50 per cent on completion of the work.

'Obviously this leaves me in a slightly vulnerable position as I am relying on the customer’s honesty. If a customer does not pay it does not leave me with a lot of options as it is not worth the time and cost to take them to court to recoup the loss of earnings.'

Jaime Hoyle, director of Monroe Diamond Drilling, says: 'When we do not receive payments on time we obviously cannot pay our suppliers on time, which not only gives us a bad reputation but also could put a black mark on our credit.



'Also we have 10 employees to pay weekly and as we are a small company only just starting out we do not have the backing to pay out money if we have not received payments ourselves.

'The worry of hassling the client and antagonising them is a big worry for us.

We try to leave it as long as possible until we literally cannot work without overdue payments before contacting them about it as there is so much competition out there in our trade that we are concerned they will look elsewhere.'

Even with a government promise to clamp down on late payments to help SMEs, the findings show a quarter of those surveyed - 24 per cent - actually believe the issue of late payments has deteriorated during the past two years. Only 17 per cent believe there has been an improvement.



Despite a widespread unwillingness to pursue late payers, most small businesses recognise that taking action would deliver results: 30 per cent said they believe they could recover more debt if they were more proactive and 13 per cent of those who have had bad debt believe they could recover more than 50 per cent if they chased harder.

'I WAS FORCED TO SHUT DOWN MY BUSINESS BECAUSE OF BAD DEBT'

Phil Bennett is the founder of Chesham Transport Services, a small warehousing and transport company based in Essex. It owns four vehicles and employs five members of staff.

He says: 'Because we provide a service to customers whereby our costs are almost all upfront or payable within 30 days - ie rent, fuel, vehicle maintenance, wages) and most customer expect 60 days credit, we find our cash flow is stretched. When customers fail to pay within the 60 days this has serious implications for our business.

'I have had to drop several customers because of their poor payment performances with us.

We do not have any security to allow the banks to increase lending if debts become very old. I have put a lot of personal money into the business to maintain it and when this is gone and money is not being paid it has a toll both for the business and for my family.

'It is difficult to press too hard with those that are late payers. They can just go to another transport firm if you refuse to do their work until payment is made and it is costly to chase them legally.

'I had a previous transport company that folded because my creditors lost patience with us when another company ran up debts amounting to £65k. I got the money, plus interest but only after a battle and a lot of legal cost. By the time it arrived it was too late to save the business. All I could do was pay off my creditors and start again with a new venture.'



According to Satago’s findings, many businesses are held back because they don't have a debt chasing process.



Three quarters of firms, or 77 per cent, do not have a person or a procedure in place for chasing bad debt and a vast majority have no established escalation process for late payments.



The study also shows that SMEs are using a variety of tactics for chasing debtors, including telephone calls, emails and legal action.



Some have even shown up at the debtor’s office or home to escort them to the bank. Only 15 per cent utilise late payment regulations to charge customers for late payment.

Steven Renwick, of Satago said: 'Despite losing out on thousands of pounds every year our research shows that SMEs are struggling to deal with late payments. SMEs feel uncomfortable chasing, do not want to annoy customers and a majority do not have a process in place to deal with the situation.

'The current supplier power structure means that big business is in a position to take advantage of SME and freelance suppliers.

