The extent of the problems late payments pose to small and medium-sized businesses in the North East has been highlighted by startling new figures based on official reports made to Companies House.
Following the launch of The Journal’s Pay Fair campaign, online commercial debt recovery law firm Debt Guard Solicitors looked at the accounts for 253 SMEs in region, covering the last financial year.
The company found the average small business had been burdened with £1.6m of trade debt during the period - above the national average of £1.5m.
Sunderland-based SMEs had the highest average debt level, standing at £2.4m, followed by Newcastle’s, who were owed £1.8m.
The overall indebtedness of the region’s SME market reached £865bn in 2013/14, with late payment being a major contributory factor, according to Debt Guard.
Micro-businesses - those with less than 10 staff and a turnover below £2m - were proportionately the hardest hit, and, on average, the SMEs waited 51 days for payment, significantly longer than the typical 30 day timeframe.
Debt Guard’s chief operating officer Mark Burgess said: “This research highlights the financial headache caused by outstanding and unpaid bills.
“It is clear that the North East’s smallest businesses in particular need much greater support in this respect, as many are facing the very real threat of closure due to trade debt pressure and late payment.”
According to the firm, a key research finding was that 11% of the region’s micro-businesses had dangerously high debt levels, reaching a third of their annual turnover.
However, this was slightly lower than the national average of 12%.
Highlighting the scale of the financial squeeze on the region’s smallest businesses, the average trade debt for micro-SMEs amounted to 14% of turnover.
Mr Burgess added: “Our message to all of the North East SMEs struggling with late payment is: don’t write off your debt.
“Instead, look at legal ways to professionally recover it as, by improving credit flow, this will help put your business on a more stable financial footing.”
Trade debt refers to the total money owed to a business - including current invoices and overdue payments - for goods and services supplied to customers over the course of the financial year.
Debt Guard Solicitors, part of Irwin Mitchell, is a customer-controlled internet-only debt recovery legal service focused on the SME marketplace.
Through the Pay Fair campaign, The Journal is encouraging North East companies of all sizes to take a responsible and ethical approach to paying firms within their supply chain.
We are asking firms to sign the Business Ethics Pledge created by the North East Institute of Business Ethics, thereby agreeing to join with others to discuss the value of business ethics and to work with each other to transform their working environments for the better.
For more information, see http://www.nibe.org.uk/