Too many small and medium-sized enterprises (SMEs) across Scotland are putting their futures at risk by not pursuing all money owed to them.
Misconceptions about the legal options available for debt recovery often deter smaller business owners from taking action. But with the financial year-end approaching, it’s more important than ever to ensure that outstanding debts are collected – helping businesses to balance their books and look forward to the next 12 months with confidence.
With the overall financial landscape remaining incredibly challenging, the serious impact of late or non-payment cannot be ignored. Yet, many SMEs reluctantly let payments slip or disappear without pursuing them legally, either assuming recovery isn’t worth the effort or believing the legal process is too complex or costly.
The final few weeks of the financial year can be stressful. To avoid the pain from outstanding invoices extending into the next financial year, businesses must take proactive steps to recover what they are owed.
For all businesses - but SMEs often operating on tight margins in particular - good cashflow and prompt payment are critical. Many have already made significant outlays to complete work, so delayed payments can create serious financial strain.
Challenging the myths around debt recovery
Too few businesses realise the steps they can take, partly due to the myths surrounding the debt recovery process. These misconceptions discourage many SMEs from seeking legal support, even when it could make a real difference.
According to the Smart Data Foundry, late payments cost SMEs across the United Kingdom an average £22,000-a-year - and the Federation of Small Businesses reports this causes 50,000 business closures annually.
One common misconception is that pursuing smaller debts through legal channels isn’t financially viable. While there can be challenges in recovering smaller debts, taking action can be more cost-effective than many business owners realise - and there are options to manage the cost.
Another concern is that debts may be too old to recover. In Scotland, most debts can be pursued for up to five years after becoming due. However, acting quickly increases the likelihood of a successful recovery.
Taking action early is key
The most common feedback we hear from businesses is that the process is overly complicated. Whilst pursuing legal action can seem daunting, a good legal team can handle it efficiently, making the process straightforward and seamless for the business.
The key is to act early. By taking swift action, businesses can save time, improve cash flow, and reduce the risk of having to write off bad debts. Seeking advice at the right time can be the difference between recovering what is owed and absorbing an unnecessary financial loss.
As the year-end approaches, now is the time for SMEs to tackle unpaid invoices and secure their financial future.
First published in Business Mondays
18 February 2025
