‘Be aware of bad debts’, businesses warned

16/05/2008

Small businesses need to be aware of potential bad debts to avoid insolvency, a financial management service has warned.

e-bcm said the credit crunch will mean small businesses are ‘certain’ to experience more problems with bad debts in the second half of 2008.

Recent figures from PricewaterhouseCoopers found that almost 3,400 companies entered insolvency during the first quarter of 2008 – a 21% increase on the previous quarter, and 17% higher than at the same time last year.

Dennis Scott, e-bcm’s commercial director, warned with rising inflation and cautious banks continuing to reduce their exposure to risk, the number of business failures can be expected to increase again.

“When one business fails, there is a domino effect. Unsecured creditors will have little hope of recovering what is owed to them and may subsequently find themselves unable to meet their own debts and struggle to stay alive,” he cautioned.

Scott urged business owners to run checks on all potential customers to ensure they have no outstanding debts. “Many small business proprietors don’t like asking for payment or checking up on customers in this way, but at the end of the day it’s only common sense.

“Once a business enters insolvency, you have little or no chance of getting paid anything. Find out in advance, and you may at least be able to recover most, or at least some of, what you are owed – before it’s too late,” he said.