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Business Moneyfacts’ Editor, Lee Tillcock, has hit out at unauthorised borrowing
charges for businesses.
“Since the 2002 Competition Commission investigation into unfair business bank
charges, there has been a marked increase in many unauthorised fees", he
explained.
"So far, little evidence of what the investigation set out to achieve, namely
increased competition and reduction in day-to-day banking charges.
“There is a wide range of fees and charges associated with an unauthorised
overdraft on a business current account.
"Charges can range from £4 to £30 per day or up to £30 per debit, a potentially
costly mistake for any business to make.
“One reason likely to take an SME into its overdraft facility (authorised or
unauthorised) would be as a consequence of bad debt or late payment from their
debtors book.
"According to a recent Credit Management Research Centre report, UK firms are
writing off tens of thousands of pounds every year in bad debt with SMEs writing
off, on average, £14,000 per annum.
“It must also be remembered that, even if a late payment does not tip an SME
over the edge, it can create an unwelcome blemish on the company’s financial
history.
"As a credit rating becomes increasingly impaired, the opportunity to take
advantage of switching to an account with an alternative provider also slips
away.
"We still await an OFT comment on the 2002 Competition Commission ruling.
"An OFT spokesman told me that it had nearly finished the consultation period on
business and SME banking, and would undertake detailed analysis of the data,
with a view to making an announcement on this at some point early in 2007.
"It seems that the question still remains the same. Can small businesses
continue to survive the waiting game?
“Following a number of successful high-profile personal cases, the OFT has
stated that, in the future, charges should only reflect the administrative costs
of dealing with the default.
"Surely the same criteria will apply to business banking.
"Unauthorised overdraft charges must only cover associated costs and not, for
instance, be used as a method of financing other less profitable products and
services.
“The best advice for any small business facing financial difficulty or cash flow
problems is to speak with its business manager as soon as possible, before
things get out of hand.
"After all, this is supposedly a service included within
their banking charges.”
According to the British Bankers Association, small firms increased their
overdraft borrowing by 10% last year to £8.8 billion.
Source:
Credit
Control Journal
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