Small companies told: Claim those debts you’re owed, as 98% don’t

Huge majority of SMEs won’t chase bad debtors and ‘business bullies’ through the courts

Virtually every Small and Medium Enterprise (SME) in the country have millions of pounds in outstanding debts owed to them, but haven’t chased their debtors through the court system.

A Yorkshire-based company law consultant says that the main reason that 98% of SMEs and sole traders haven’t claimed money that is rightfully theirs is that they think it is too costly or too much trouble to go to court.

Other traders say that they are less than confident that they’ll get a ruling in their favour, while others think that even if they do win, the other party will act like a bully and still refuse to pay up, the consultancy company says.

“People are too scared of going to law to get their money, especially when they’re faced with a ‘business bully’ who makes life difficult for sole traders by simply refusing to acknowledge invoices,” says Protecting spokesperson Mark Hall.

“We estimate there are tens of thousands of small companies owed hundreds of millions.” asked dozens of sole traders and SME owners, including tradespeople such as plumbers and joiners, about chasing debts and found that:

• Only 2% would chase debts through the small claims court system
• Of those who wouldn’t, 58% said they were put off by upfront fees for the paperwork
• Some 20% said they were put off by the paperwork itself
• 12% said they weren’t confident that the other party would pay up if they won the case
• 18% thought the entire process of chasing bad debtors through the courts wasn’t worth their time and effort

Typical of business owners was Brian, who owns a construction company employing half-a-dozen people: “I’m owed £12,000 by a customer, but he tells me he’s owed thirty grand by somebody else and can’t settle up with us until that invoice is paid. What can you do?”

Tracey, who is a shop owner in the Midlands says she’s owed £1,500 by a client. “It’s just not worth the hassle and cost of going to court for that money. I’ve written it off and chalked it up to a life lesson.” ‘s Mark Hall says: “That shows a marked reluctance to chase after debtors, and it’s hitting SMEs right in the pocket. The truth is that it’s far cheaper and far easier to go after your debts that most business leaders think.”

How bad is the bad debt problem?

A report in January this year estimated that the British construction trade writes off £2 billion in bad debt every year. A large proportion of this falls onto small companies and sole traders who are hit particularly hard when invoices aren’t paid.

Another survey found that one-in-four SMES are fighting bad debt – that’s over a million companies.

“Small companies can be hit hard by bad debt, especially when they have to pay for materials and staff up front,” says Hall.

“One unpaid invoice can cause perfectly good companies to fold, and we see that happening far too often.”

Claiming what’s yours

It’s now far easier than most SME owners think to go to the Small Claims Court, says ‘s Mark Hall. Instead of having to take time to file papers at your local court, the government has now made all documents available online, and reduced the court fees for claims made through the internet.

“It’s now so simple, you can do it all from your sofa in front of the TV,” he says. “And the fee for a claim of up to £1,500 is now only £70 if made online.”

As long as everything is done right – such as sending a letter of intent to claim to the owing party, there is no reason to doubt that a ruling will be made in your favour.

Other services are available that may prevent the need for a court hearing.

“You don’t necessarily have to go through the courts,” says Michael, who owns a business based on the south coast. “The district judge asked us to try mediation instead, and that resulted in a four-figure pay-out after everybody met face-to-face. Well worth it.”

One of the concerns of many traders is that the other party won’t pay up even after a court order has been made. There’s a raft of enforcement options available if this happens, says Protecting’s Hall, which result in a successful outcome in a majority of cases.

“It’s not just the messy business of debt collectors and bailiffs which tend to intimidate both the claimant and the non-paying party,” says Hall. “Orders can be made to freeze bank accounts and deduct cash from wages.

“The powers are there to settle bad debts.”

In the long run, the recovery in Britain’s economy is being hit by companies not settling their debts.

“It’s important that SMEs claim what’s owed to them. It’s not only profits, but jobs at risk too,” says Hall. “Don’t let the business bullies win.”