Many SMEs don't have the luxury of bank overdrafts.

Debt recovery is speeding up

Published:  02 December, 2009

GUILDFORD: Reports suggest the end of the recession is in sight, and according to new figures from Lovetts, the debt recovery law firm, the news has pushed construction companies to speed up their debt recovery processes.

The figures show a decline by businesses in the amount of time they will tolerate waiting for payment. It is also clear that there is no longer a reticence to threaten legal action too promptly after the usual 90-day credit limit.

Compared to Q3 last year, construction companies are now chasing up debts with a Letter Before Action (LBA) an average of 19% sooner and legal claims are being issued 40% quicker compared to Q3 2008.

The most dramatic figure is the rise in value of debts owed – in the construction sector this has risen by 81% year-on-year.

Charles Wilson, chairman and managing director of Lovetts, commented: "Businesses are keeping a closer eye on their cashflow and changing their debt recovery processes to keep the cash coming in. This has to be balanced with the need to maintain good customer relationships. It's a really tough balancing act for many businesses – particularly SMEs who simply don't have the luxury of bank overdrafts to provide security when a customer fails to pay.

"The increase in the amount of debt owed shows that further improvement is vital for business survival. It only takes one customer to pay a larger invoice a few months late to seriously affect a business' cashflow and put its future at risk.

"It's vital that a robust debt recovery process is in place to help ensure 90 days doesn't become any longer – reaching the point at which recovery will be both protracted and expensive."

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