Sizeable bad debts for SMEs but most fail to credit check
Tuesday, 19 April 2011
A survey of SMEs has found nearly half report they were hit with bad debts last year with most debt worth more than a $1000.
The March survey of SMEs employing 20 or fewer people conducted for the country’s leading credit bureau Veda Advantage found that most companies with bad debts had less than 10 bad debtors on their books. But the size of those debts was serious:
28% had debts worth $1,001 - $5,000
14% had debts worth $5,001 - $10,000.
24% had debts worth more than $10,000
Veda Advantage managing director, John Roberts, says the size of the bad debt carried by SMEs shows just how damaging it can be to a small business.
“I am concerned but not surprised that SMEs are suffering under the weight of bad debt. It’s damaging for these businesses and over time could put them out of business.”
Roberts warns that the Global Financial Credit Crisis and the Canterbury earthquake have compounded cashflow problems for individuals and businesses making it moreimportant to check ability to pay before extending credit.
“We know the Credit Crisis has left a large number of businesses with adverse information on their credit files.”
The survey found that half (51%) of the SMEs surveyed ran a trade credit process within their companies. While this is good to see, Roberts is concerned by the survey’s finding that 45 percent did not have a trade credit process. He warns that for these SMEs
“this is disaster waiting to happen.”
Veda Advantage is also disturbed to find that 79 percent of the SMEs surveyed do not use a credit bureau.
“If SMEs want to cut down on bad debts they have to get serious about trade credit processes within their companies and in properly checking people who are advanced credit.
Without taking these steps SMEs will find themselves vulnerable to bad debt and unable to grow to their full potential,” says Roberts