Posted by John North, Partner
Are you writing off recoverable debts?
The UK is home to over 1 million SMEs and our economy is undoubtedly reliant on the collective revenue that our local businesses generate. With reports showing that SMEs across the UK wrote off nearly £5.8bn worth of debts in the financial year 2015/2016, the equivalent of £21,000 per day, is it safe to assume that these were all irrecoverable or could more be done to improve credit control and cash flow for our SMEs?
Charlotte Newlyn discusses the reasons motivating such a staggering write off and the options available to creditors looking to recover monies owed to them which they may otherwise feel they have no choice but to give up on.
The research, released by Direct Line for Business, consulted 780 businesses throughout the study and revealed that over 80% are currently owed money from their debtors, with the average business being owed over £62,000.
The sums owed were varied: 19% of those asked reported writing off an average debt of £31,330, and 9% wrote off more than £100,000. An unexpected 40% of those asked confessed that they do not know how much they are owed by debtors.
The impact of these unpaid debts is evident, with nearly 7,000 SMEs entering in to liquidation in the first half of 2016 alone, with many citing poor cash flow as the primary reason for their failure.
There are varying reasons why businesses are choosing to write off debts owed instead of attempting to recover what is rightfully theirs. Participants in the Direct Line study quoted the following reasons for giving up on unpaid debts:
- the debtor’s insolvency
- an unwillingness to potentially damage their client relationship
- uncertainty as to the debtor’s ability to pay
- being unaware of their options when recovering a debt
- and wanting to avoid spending time recovering monies owed.
But are all of these reasons valid?
It appears that many creditors are unaware of the options they have available to them for debt recovery and are unclear about the process itself. Writing off debts should be a last resort, as there are several options a business can take before considering writing off debts.
What services are available?
Nick Breton, head of Direct Line for Business, stated that it is imperative to their survival that SMEs “ensure that they are fully aware of all legal avenues designed to help them recoup all of their owed monies”, something all legal advisers will agree with.
Our Dispute Resolution team has extensive experience in debt recovery, aiming to reduce the time and costs involved with recovering monies owed. We have successfully advised clients with both disputed and undisputed debts and offer a variety of options depending entirely on each particular situation.
You can find helpful preliminary advice on your options regarding debt recovery on our website here
For further information, an initial meeting with a member of our Dispute Resolution team will establish the context surrounding your debt and the options available.
For legal advice, contact our team of experts
0800 923 2076 Email us
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