10:17am Thursday 27th April 2006
BRITISH firms are writing-off tens of thousands of pounds every year in bad debt due to customers not paying their bills, according to new research.
Bad debt among larger firms has almost doubled, so they now face on average £88,000 worth of unpaid invoices every year. At a five per cent profit margin these losses would require additional sales of £1.76 million to cover the shortfall.
If the profit margin were one per cent then the turnover would need to increase by a staggering £8.8 million.
Small to medium sized firms, on the other hand, write-off on average £14,000 in bad debt. At a five per cent profit margin they would have to drum up additional sales of £280,000 or £1.4 million with a one per cent profit margin to make up for the loss.
The Credit Management Research Centre (CMRC) report, produced by Leeds University Business School and sponsored by global credit insurer Atradius, found that more than one in five of all UK firms say bad debt is now a serious problem for them, with a third of companies admitting late payment is also a serious issue.
There is increasing concern over bad debts from export customers, with one in five larger businesses seeing it as a serious problem.
The CMRC survey found that late payment remains a serious problem for about a third of all British businesses.
Will Clark, Atradius' regional director for UK and Ireland, NAFTA and Australasia, explains: "It is no surprise that bad debt and late payment are growing problems for British firms, but the escalating impact this has on their bottom-line is significant.
"Even for a relatively small bad debt of £14,000, the average business would have to increase their sales 20-fold to cover the debt.
"For a larger firm, needing extra business of £1.7m to make up for a debt of £88,000, such a loss could seriously cripple cash flow and possibly even push them into insolvency.
"The number of insolvencies in the UK is steadily rising, so firms must have systems in place to minimise the risk of bad debt."
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