More than three quarters of small businesses are reluctant to call in debts despite coming under increasing pressure, a survey has found.
Cattles Invoice Finance said SMEs were reluctant to exercise their legal rights on debtors for fear of alienating the people they were working with.
Just 24 per cent of the 300 small business owners interviewed by CIF said they had taken legal action to recover outstanding monies, in spite of 77 per cent being aware of their legal right to charge debtors a percentage on unpaid invoices.
Comments included: “I think there is a fine line between maintaining the relationship with customers and souring it. I wouldn’t want to do anything to put pressure on them in this way in case it negatively affected the relationship” and “All of our clients are repeat customers, so sometimes it would make the relationship a bit strained and unfriendly”.
Tony Smedley, regional managing director for the Midlands at CIF, said: “Managing cashflow is the key issue facing SMEs in the current economic climate, and being paid on time can make the difference between survival and collapse. For that reason, it is surprising that so few SMEs are pushing for settlement of unpaid invoices, charging interest or taking legal action to recover outstanding monies.
“There is nothing worse than a debtor spotting a weakness and, if invoices aren’t chased, many companies will take advantage of the situation and avoid making payment, particularly when money is tight. Now more than ever, it is important that SMEs understand that there are ways of successfully managing the careful balance between prompt payment and happy customers.
“Invoice financiers, for example, chase payments on behalf of clients on a daily basis. A good invoice finance company will also agree with its clients the frequency, style and stance with which debtors are contacted, as well as the wording and course of action within the letters sent. This then ensures that client relationships remain unaffected and the outstanding debt can still be recovered.”