Small firms warned about overdraft spending

Overdrawn firms borrowed £8.8bn last year

Small businesses are increasingly using overdraft facilities to finance their company operations, a new report suggests.

The British Bankers Association (BBA) says that small firms increased their overdraft borrowing by 10% last year.

 

This means that small firms were collectively overdrawn by a massive £8.8bn during the course of 2005.

However, the BBA say this is causing many firms to incur charges for late payment and are building up unnecessary overheads as a result.

One reason likely to take a firm into its overdraft facility is bad debt or late payment from their debtors, the report says.

According to a recent Credit Management Research Centre report, UK firms are losing tens of thousands of pounds every year in bad debt with small companies writing off, on average, £14,000 per annum.

“It must also be remembered that, even if a late payment does not tip an small businesses over the edge, it can create an unwelcome blemish on the company’s financial history,” says Lee Tillcock of Money Facts.

“As a credit rating becomes increasingly impaired, the opportunity to take advantage of switching to an account with an alternative provider also slips away.

“The best advice for any small business facing financial difficulty or cash flow problems is to speak with its business manager as soon as possible, before things get out of hand.

“After all, this is supposedly a service included within their banking charges.”

© Crimson Business Ltd. 2006

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