SMEs are turning to litigation in ever increasing numbers to collect in debts.
According to research undertaken by the Credit Management Research Centre, 2,000 such cases were brought in September 2008, compared with just 1,500 in January 2008.
This is a clear indicator of generalised cash-flow issues within SMEs. The research also shows that the property and retail sectors have been particularly badly affected, with the amount of cases brought in these sectors rising an incredible fivefold in the last two years.
Reports earlier this year showed that, overall, money owed to SMEs in the UK rose by £2.6 million in 2007 and now stands at £18.6 million.
This research sends a clear message to SMEs to tighten up on cash-flow management and credit control generally. Although court proceedings can be effective, they really should be seen as a last resort.
All companies should consider a Zero Tolerance Approach to Bad Debt and how much of this approach could be adapted to help them survive and thrive during the recession.
Gary Cousins, Business Lawyer
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