Cash flow problems kill 15,000 small UK firms/year

UK's small firms will have to improve their credit checking procedures or face potentially devastating consequences after the number of business failures increased in 2005.

A leading business pressure group 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.

The Forum of Private Business (FPB), 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%.

The transport and communications sector reported an increase in failures of 11% and manufacturing saw failure rise 7%.

Close Credit Management (CCM) 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 GBP 50bn a month in outstanding debts.

CCM said given that there are 4.3m small businesses in the UK with average outstanding monthly debts of GBP 12,000 which are at least 30 days overdue, this means small firms are throwing away at least GBP 2.7bn, assuming an annual interest rate of 5.5% a year in interest, in interest payments.

The FPB's chief executive Nick Goulding said the scourge of late payment is still crippling small businesses.

"We urge bosses to take stock of these facts and ensure they have rigorous credit checking processes in place," he said.

"This means thorough management including credit checks on new customers and even existing customers, offering incentivessuch 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." * Credit Control Guide background - the FPB is offering your readers 20% off its Credit Control Guide for small firms at GBP 48 a saving of GBP 12 .

To claim the guide, readers should call the FPB Member Information Services team quoting your publication.

This four-part guide explains clearly and simply how to identify the nature of commercial credit practices and implement procedures and policies to manage them efficiently.

Model documents, dealing with terms of trade, invoices and reminder letters, are provided to arm the business owner with all they need to maintain effective control of commercial credit.

* About The Forum of Private Business - The Forum of Private Business (FPB) was formed in 1977 and is a pressure group fighting on behalf of private businesses.

The FPB represents approximately 25,000 UK-based businesses employing in excess of 600,000 people, and is a powerful lobbying voice in both the UK and the European Union.

The FPB, as the only full UK member of UEAPME - the organisation that represents small and medium-sized enterprises (SMEs) in Europe - is the most prominent advocate of UK SMEs in Brussels and has a track record of positively affecting legislation prior to its introduction in the UK.

The FPB also provides a range of business services aimed at increasing member efficiency and profitability.

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