Bad debt hits small businesses

Photo / Thinkstock

A survey of small to medium businesses has found nearly half of them were hit with bad debts last year.

Credit bureau Veda Advantage said 24 per cent of those companies had bad debts worth more than $10,000.

The survey found the remainder of SMEs employing 20 or fewer people, wrote off debts of between $1,000 and $10,000.

Managing Director John Roberts said he was concerned, but not surprised that SMEs were suffering under the weight of bad debt.

"There are 400,000 small and medium enterprises in the country and there is some serious money being written off with bad debts," he said.

Roberts said the global financial credit crisis and the Canterbury earthquake had compounded cash flow problems for businesses and individuals.

"A lot of companies in New Zealand are still writing off a huge amount of bad debt, and if they want to stop doing this they need to actually start to put in place a proper trade credit practice."

John Roberts said a $10,000 debt write-off could be the difference between a company surviving or going bankrupt.

The survey also found 45 per cent of companies did not run a trade credit process within their companies, a fact Roberts said he found "disturbing".

"If SMEs want to cut down on bad debts they have to get serious about trade credit processes within their companies and properly checking people who are advanced credit," he said.

Roberts said too many companies were focussed on selling their product first and worried about getting paid later.

The smart companies did due diligence on their customers before they sold them a product, he said.

"It's the old story a sale is not a sale until the money is in the bank and a lot of these companies simply aren't getting paid," he said.

Roberts said companies should speak to their accountant or small business advisor for advice about trade credit processes.

- Susie Nordqvist / NEWSTALK ZB