Sometimes the statistics speak for themselves.
According to a new analysis from Direct Line for Business, small and medium sized enterprises (SMEs) in the UK wrote off a combined £5.8 billion during the last financial year – the equivalent of more than £21,000 a day.
Among those who have written off debt, the average amount stood at £31,000 for 2015-16; and 82% of SMEs currently have balances outstanding from their debtors – with the average business estimated to be owed £62,957.
For insurance brokers, the figures offer an opportunity to stress the importance of a well-structured policy – particularly one that can help cover any loss of earnings when a client or supplier lets a business down.
“While maintaining a healthy relationship – and thus ensuring future income – is essential for businesses, many small businesses cannot survive without a regular cash inflow,” said Nick Breton, head of Direct Line for Business. “SMEs should ensure that they are fully aware of all legal avenues designed to help them recoup all of their owed monies. In addition, they should ensure they have the correct insurance in place to account for any loss in earnings that may come about if and when a client or supplier is unable to fulfil their financial obligations.”
Of course, there is a more serious issue too, with Breton pointing out that businesses could face insolvency in extreme circumstances.
“It is alarming to see just how much hard work goes unrewarded, especially when considering that many SMEs appear reluctant to chase debts, with reasons ranging from thinking that the client may not be able to afford the cost to damaging their relationship,” he said.
“All of these debts add up and with nearly 7,000 companies estimated to have entered liquidation in the first half of 2016 alone, the potentially disastrous knock-on effects of writing off monies owed are clear.”
Brokers can also use the statistics as an opportunity to offer a more rounded service to their clients – informing them of the steps they can take to limit their risk of making an insurance claim for loss of earnings. The research suggests that the reason so much money goes unclaimed could be due to a lack of awareness of the proper channels for reclaiming unpaid income. Nearly two thirds (65%) of SME owners and decision makers said that they were unsure what the N1 Claim form was for (the document used to start a civil claim in the English court).
Some of the tips that might help SMEs protect themselves include: working only with businesses they know; ensuring they know their rights even if their client is bankrupt; and, of course, making sure that they have suitable business insurance and legal cover in place.
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