Credit check warning to small business firms

SMALL FIRMS could face devastating consequences if they fail to improve their credit checking procedures after the number of business that collapsed across various market sectors increased in 2005.

The Forum of Private Business (FPB), which represents 25,000 small firms, made its remarks in light of figures produced by credit reference agency Equifax and Close Credit Management. Equifax found that the retail sector suffered the greatest increase in failures rising 25 per cent compared with 2004. Meanwhile the hotel and catering sector tied with construction for second place - with both recording increases in failures of 19 per cent year on year.

The transport and communications sector reported an increase in failures of 11 per cent and manufacturing saw failure rise seven per cent.

Close Credit Management (CCM) meanwhile, says 15,000 small firms will fail this year because of cash flow problems. It says small firms are failing to recover a staggering £50bn a month in outstanding debts.

The FPB's Chief Executive Nick Goulding said bosses should take stock of these facts and ensure rigorous credit checking processes were in place. Thorough management could help including credit checks on new customers and even existing customers, offering incentives such as discounts for prompt payment, making customers very aware of their payment with prompt invoices.

"Beyond that it is worth outsourcing collections, buying a credit insurance policy and constantly looking around for new business rather than relying on one or two clients."

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