Member Article

Manchester law firm tackles problem of micro-SME debt

The average micro-SME is £68k in debt, largely caused by late payment.

Manchester-based commercial debt recovery firm Debt Guard Solicitors part of Irwin Mitchell has taken on this problem by lobbying for an amendment within the Small Business, Enterprise and Employment Bill.

The Manchester law firm wants a daily late payment interest at 8% to be included, an amendment that has been rejected by MPs at this point.

Analysis of Government Companies House records by the firm reveals 4,192 micro- businesses, defined as having less than 10 staff, on average each fell into £68k of trade debt in the last financial year.

These firms also typically waited 63-days for payment – over double the standard payment terms.

Research by the Institute of Directors revealed two-thirds of SMEs suffer from the problem.

This is despite Government attempts to address the crisis, such as through the Prompt Payment Code, which seeks to encourage large businesses to set out clearly defined payment terms.

However, due to the voluntary nature of the code, only 1,700 UK’s businesses have signed up to its principles.

The EU Directive on Late Payment, calling for a maximum payment timeframe of 60 days, has also been largely ineffective.

This is due to a loophole that allows for longer payment terms if agreed with the supplier.

According to the Federation for Small Business, 5% of small businesses have also been asked to make some form of payment to avoid being ejected from preferred lists of suppliers.

The ‘Pay and Stay’ policy of Premier Foods, which involved requesting suppliers pay up to £5k was recently widely criticised.

Debt Guard’s chief operating officer, Mark Burgess, said: “To combat what is an entrenched late payment culture damaging SMEs cash flow, tougher legislative action is required.

“For instance, the existing statutory right to charge late payment interest does not go far enough and should be replaced by a more robust ‘opt-out’ system instead.

“The risk of an enforced legislative financial penalty would help ensure that contracted payment terms are adhered to by big companies rather than undermined.”

“We would like the House of Lords to put forward an amendment in support of an ‘opt-out’ system on late payment daily interest charges for the House of Commons to consider.

“For those companies that do opt-out, they should be publicly named to dissuade others from following suit.”

This was posted in Bdaily's Members' News section by Sophia Taha .