Self-employed burdened with high levels of debt

A charity says that the self-employed are particularly saddled with high levels of debt, typically owing £10,000 more than the average individual seeking help.

Self-employed more likely to turn to credit

According to StepChange, over 16,000 people approached the charity for debt-related advice in 2012 – owing almost £28,000 on average – significantly more than the overall average debt figure of £17,635.

Full-time employees approaching the charity owed £8,000 less that their self-employed counterparts, and part-time workers owed even less.

The difference in debt levels illustrate the risk small business owners take on when setting up a new business, and also how the self employed are more likely to use credit sources when waiting for clients to settle their invoices.

Individuals who had experienced a business failure reported average debts of over £45,000.

Delroy Corinaldi from StepChange said that debt problems can rapidly get out of control, especially if business owners use credit as their primary source of funding:

“This research shows the harsh economic reality of owning a business. These clients have most likely turned to loans to kick-start their enterprise but with lower than average incomes and high expenditure this can lead to spiraling debt problems.

Keep the cash flowing

From our experience at Company Bug, one of the main reasons why small companies fail is due to poor cashflow management. Aside from generating business in the first place (the very essence of a successful business), making sure that customers pay on time is probably the most important task a company owner should undertake.

You should always make your payment terms clear at the start of any business transaction, invoice promptly, and use software to keep track of any outstanding invoices. You should also consider charging interest on late payments (although many businesses don’t for fear of losing future business), and use a reputable debt collection agency for persistent offenders (as a last resort).

Take a look at this late payment article for some initial ideas on setting up an efficient cashflow management system for your business.