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The Forum for Private Business (FPB) is warning small firms to improve their
credit checking procedures or face potentially devastating consequences after
the number of business failures across various market sectors increased in 2005.
T
he group, which represents 25,000 small firms, made its remarks in light of
figures produced by credit reference agency Equifax and Close Credit Management.
Equifax found that the retail sector suffered the greatest increase in failures
rising 25% compared with 2004. Meanwhile, the hotel and catering sector tied
with construction for second place, with both recording increases in failures of
19% year on year. The transport and communications sector reported an increase
in failures of 11% and manufacturing saw failure rise 7%.
Close Credit Management, meanwhile, says 15,000 small firms will fail this year
with cash flow being a main driver of failure. It says small firms are failing
to recover a staggering £50 billion a month in outstanding debts.
The company claims that , given that there are 4.3 million small businesses in
the UK with average outstanding monthly debts of £12,000 which are at least 30
days overdue, this means small firms are throwing away at least £2.7 billion
(assuming an annual interest rate of 5.5%), in interest payments.
The FPB’s Chief Executive Nick Goulding said the scourge of late payment is
still crippling small businesses. He explained: “We urge bosses to take stock of
these facts and ensure they have rigorous credit checking processes in place.
"This means thorough management including credit checks on new customers and
even existing customers, offering incentives such as discounts for prompt
payment, making customers very aware of their payment with prompt invoices.
"Beyond that it is worth outsourcing collections, buying a credit insurance
policy and constantly looking around for new business rather than relying on one
or two clients.
"Moreover, under the Late Payment of Commercial Debts Act, which the FPB helped
drive through parliament, businesses are within their rights to charge interest
by law”.
Source:
RedAlert
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