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New wave of start-ups face late payment obstacles PDF Print E-mail
Monday, 17 August 2015

The UK’s population of start-up companies is increasing at the fastest rate on record, but they face a number of challenges to survive beyond the two-year mark, according to Experian.

About 50,000 businesses are being created each month, with 587,000 set up in the UK last year. The number of start-ups has risen sharply from the 513,000 companies established in 2013, while the rate has more than quadrupled from 20 years ago, when 130,000 businesses were set up in 1994. Records extend back to 1990.
 
But the burgeoning number of start-ups created by the UK’s entrepreneurs, often working from home or a small office, will need to negotiate a series of potential pitfalls to make it to their second birthday.
 
Ade Potts, Managing Director of Experian’s SME business, said: “It’s never been easier to set up your own business, using just a laptop, mobile phone and home office in many cases. But equally, it’s never been harder to be a small business, facing down the risks posed by suppliers settling invoices late and customers falling into insolvency.
 
“Checking the credit reports of the customers and suppliers your business comes in to contact with is not a big financial outlay and it could help your business survive beyond the two-year mark.”
 
Experian is helping small businesses under two years old to make smarter credit decisions in an affordable way by offering 99 credit reports for £99. Businesses will also receive £20 marketing credit to help grow their business.
 
The UK’s smallest companies, with one or two employees, were the fastest at settling overdue invoices in the last tax year, running from April 2014 to March 2015. Sole traders and duos took 20.58 days beyond terms (DBT) to pay outstanding invoices, while businesses with six to ten employees (21.19 DBT) and three to five staff (21.34 DBT) were the next best performers.
 
But small businesses supplying larger companies need to be mindful that larger businesses may not be so swift in settling overdue bills if they are to avoid cash flow difficulties. Businesses with 501 or more staff took the longest to pay overdue invoices, going 34.18 DBT, significantly above the national average of 24.29 DBT.
 
The payment performance of companies also varies depending on their region and industry. Businesses in Northern Ireland settled overdue invoices 15.93 DBT, compared to those in the North West which took 30.44 DBT. Meanwhile postal and telecommunications companies performed the poorest of all industries, taking 44.44 DBT, while agriculture, forestry and fishing paid after 9.98 DBT.
 
Despite the challenges posed by late payments, the smallest businesses showed impressive survival rates in the last tax year. Just 0.05% of sole traders and 0.07% of companies with two to five employees became insolvent in 2014/15. However, the companies many of them supply had a more difficult year, with 0.13% of companies in the categories covering six to 50 employees going into insolvency. More than 20,000 companies fell into insolvency in the last tax year.
 
How businesses can reduce the risk of late payments:
 
·         Status check: Is the business you are dealing with real? Four out of ten companies which start up never actually go on to trade. Telephone and email correspondence with a new customer should be backed up by checking its address is real in person or on Google Street View.
·         Thorough research: Running a credit check on a potential customer or supplier will reveal their credit status, trading history and help you make an informed decision about the appropriate line of credit to extend to them in the future.
·         Remain watchful: Conditions can change rapidly, so a business which was a prompt payer yesterday may run into financial difficulties tomorrow and affect your cash flow. Monitor customers on an ongoing basis and take a proactive approach to dealing with potential problems with payment.
·         International outlook: Don’t treat trading abroad like a holiday. Take similar precautions when exporting as you would do when doing business within the UK.

(Source - Experian News Release)
 

 

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