Impact of debt write-off differs across region

CONFLICTING results have emerged about the effect of debt write-offs on both Manchester and Liverpool’s businesses according to a new survey from Barclays.

The bank’s ‘2009/10 Business Late Payments Survey’ has shown that Manchester-based firms have more than doubled the amount of outstanding debt they are writing off, in a sign that many firms are cutting their losses on overdue payments.

In Liverpool, businesses have significantly cut the amount of outstanding debt they are writing off, in a sign that concerns over the downturn have peaked.

The annual report also reveals that on any given day around £9bn is owed to UK small and medium businesses.

Undertaken as part of the Barclays ‘Take one Small Step’ campaign, the survey found that firms in Manchester wrote off an average of £4,120 in 2009, more than double the 2008 North-West figure of £1,556.

By contrast, businesses in Liverpool wrote off an average of £440 in 2009 – around one third of the North West’s figure.

Around 720,000 small firms or one in six small businesses across the UK cancelled more debt this year than last.

The city survey also reveals mixed economic concerns over the downturn. 

A third (30%) of Manchester-based bosses say late payers continue to threaten their day-to-day survival, up from 24%, and 34% are worried about the impact of late payments on their cash flow, compared to 28% in 2008.

In Liverpool, the picture is improving. While almost a quarter (22%) of Liverpool-based bosses say late payers threaten their day-to-day survival, this is slightly down from 24%, and 38% are worried about the impact of late payments on their cash flow, compared to 68% in 2008.

Robert Maclachlan, regional director for Barclays in the North West, said: “Writing off debt is a direct hit to the bottom line.  It’s an effective and pragmatic strategy, but it comes at a cost. 

“In addition to lost revenue and there’s the significant investment of time and energy spent chasing these debts. It’s the opportunity cost that’s more concerning, as we will never know how businesses could have expanded or grasped new opportunities with this capital. 

“Businesses in both Manchester and Liverpool are making a judgement call on whether it’s better for them to keep on chasing debts, or to invest their resources elsewhere.

“Writing off debt should always be a last resort. There are powerful tools in the marketplace to help reduce and prevent late payments, from sending a solicitor’s letter, to performing a simple credit check before doing business or monitoring your customer’s credit worthiness. These have proven to be good, simple solutions that have worked for a lot of businesses in and around Manchester and Liverpool.

“We know this from the experience of our own in house CREDITFOCUS service – which has helped recover millions of pounds of unpaid debts.”

Overall, the amount owed to businesses on any given day is £9 billion, a decrease of £1 billion that is an apparent consequence of businesses writing off increasing amounts of debt.