The spiralling cost of collecting overdue accounts

BACS research finds the cost to UK’s smallest businesses was £6.7bn in 2018, versus £2.6bn in 2017, a massive growth of more than 150%. They estimate that the average cost to a small business is £9,000 a year to recover past due invoices. More than one-third of SME’s wait for payment over two months beyond terms.

This cash flow constraint has far-reaching effects for SME’s: more than 25% pay their suppliers late, nearly 30% cut salary costs, 34% rely on overdrafts, while others cease to invest and stagnate, or at worst, go out of business. Of course, BACS own Direct Debit and Credit facilities make powerful aids for an SME, in their fight for payment in full, and on time.

The Late Payment of Commercial Debts Act is a weapon that STA International uses to reduce the cost of collection for creditors large and small. On top of interest charges, the act also permits the addition of collection costs, with both added to the principal debt referred to us for recovery. In more than 50% of cases, buyers pay both the interest and collection costs, effectively reducing the creditor’s collection costs by 60%.

When is the best time to place a debt for collection? In our experience collection success drops from 80% on debts younger than 90 days past invoice due date, to 50% for debts older than this.

Another cash flow service offered by STA is Confidential Credit Control, where you can outsource some, or all, of your credit control function to us, and we act transparently in your name to collect your receivables. Aside from improving cash flow, the most significant benefit cited by our clients is the time they save to focus efforts on growing their business.

For more information on BACS research, please click here.

For more information on STA International, click here.

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