UK businesses at risk of drowning in debt

23 June 2015

A million UK businesses are affected by late payers and many are in danger of drowning in debt as they deal with late payments totalling £36bn.

Nationally, the average amount owed to an SME is £36,000; but with cashflow so critical to many businesses’ ability to operate, 35% of SMEs report that late payments of up to just £20,000 would be enough to force them out of business – a very real and concerning prospect for the 60% of UK SMEs who already experience late payments*.

Exposure to debt is of course, often necessary but there are simple steps businesses can take to ensure survival.

Six simple steps to avoiding business debt

PayPlan has teamed up with renowned business coach and founder of business advice service High Growth, Stuart Ross to offer the following tips on avoiding common pitfalls:

Build slowly. By growing too quickly it can be difficult to fill new customer orders with existing staff. Taking on additional staff ahead of receiving income from orders can lead to a cash flow crisis, requiring credit to pay staff. Give serious thought to making credit payments if customers do not pay on time.

Keep tabs on cash flow and don’t put all your profits back into the business. If your business is doing well put surplus money into a ‘rainy day’ account, which will make finances readily available should you experience a fall in income.

Keep an eye on monthly numbers, key performance indicators and cash flow figures. These simple figures should be monitored, recorded and analysed each month, and should serve as a dashboard for your business.

Don’t go it alone. Seek professional advice, either from a qualified accountant or small business specialist. They are an excellent sounding board for ideas, will assist with budgets and forecasts, and assess business plans to determine whether ideas will be profitable.

Be aware of the ‘shiny toy syndrome’. Business owners with money in the bank can be tempted to buy flash new cars or move to stylish new offices. Adopt the habit of making a proper business case for everything that you spend money on. Ask yourself if the business would really benefit from this purchase.

Monitor payment terms and debtors. It’s good practice to be tougher with late payers than you’re comfortable with and make sure methods for following up late payers are systemised.

PayPlan’s advice for businesses is similar to the advice we give to individuals struggling with debt – don’t feel isolated; there is plenty of useful help and advice available from experienced, reliable sources, much of which is free or relatively inexpensive.

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