SMALL firms have called for insurance policies extended to cover bad debt after research showed they were failing to be paid on time.

Feb 9 2010 by jez Davison, Evening Gazette

A new study by the Federation of Small Businesses (FSB) and business consultancy ICM said one in three payments from the public sector was late - despite a Government pledge last year to settle bills to small firms within 10 days.

Now cash-strapped bosses are fighting their corner and want more protection against late payers and defaulters.

A new report by Nottingham University Business School said more than four in ten small firms want their insurance policies broadened to cover bad debts, while 16% wish to insure against costs to sue suppliers for failing to deliver.

However, the study also indicated that small firms did not know what they were covered for.

More than a quarter (28%) said they wanted cover for the cost of stolen goods, 22% for loss of income arising from electricity, gas or water supply failure and 15% for environmental damage - risks that were already covered by their existing policy.

Insurance brokers are warning firms to check the small print of their policies and ensure they have a disaster recovery plan in place to deal with sudden or unexpected events.

The British Insurance Brokers Association (BIBA) claims that 45% of businesses have either no or limited plans to deal with the effects of flood or storm damage - despite flood claims totalling £3bn since 2007.

Four in five businesses affected by a major incident close down within 18 months, the organisation said.

DAVE NICHOLSON, chairman of Billingham transport firm Nicholson Group, says he has decided against insuring against bad debt because it would work out too expensive. “Most of our customers are good payers so it would be unviable given the extra cost.”

STEVE GUEST, MD of Wilton-based recruitment firm Techconsult UK, says insurance is “an absolute essential” for small firms even though his premium costs him thousands of pounds each year. “The more contractors we take on, the more risk we are exposing ourselves to. Insurance is a necessity and cannot be overlooked.”

NEIL FORREST, MD of Thornaby-based Towergate Risk Solutions Teesside, says cost and ignorance are the main reasons why businesses were not adequately insured. “There is an element of complacency. Smaller businesses won’t necessarily take time to think: what am I insured for and is my current policy adequate for my needs?”

HARRY WILMOT, MD of Middlesbrough fire protection and security firm H E Woolley Ltd, says a tightening of health and safety legislation has resulted in more businesses conducting fire risk assessments – and more work for him.