With around one-third of SMEs experiencing late payment problems, businesses in the UK are waiting on over £11 billion collectively, according to new research by Bacs Direct Credit (1).

Owed an average of £33,600 each, if the delay in payment is up to two months late, around 17% - 56,270 businesses - will collapse.

The key reason for paying late was cited by 88% of SMEs experiencing late payment problems as deliberate withholding of payment. The problem is exacerbated by the large amounts of money owed - small businesses with late payment problems are owed an average outstanding amount of £20,330, while medium sized firms are owed £98,400 on average. Late payments amounting to £50,000 have the potential to put a shocking 55 per cent of SMEs out of business.

For those that do manage to stay afloat, late payments have a considerable impact on day-to-day running and long-term business viability. 10% will not be able to pay their workforce if payment is a week late, while 38% of businesses with late payment difficulties struggle to pay their own bills on time. 58% of all SMEs stated that they could increase productivity if they didn't have to chase invoices.

However, despite acknowledging the extent of the problems late payments cause, 63% of SMEs admit that they had failed to pay at least one invoice on time, creating a perpetual circle of bad debt that is undermining UK businesses.

Mike Chambers, Managing Director of Bacs, the company behind Direct Debit and Bacs Direct Credit, comments on the findings, "It's worrying to see the extent of the problems that late payments are causing in this business sector. A single late payment can have serious implications not just for one business, but others further down the line."

Payment methods also contribute to the problem, with 57% having received cheques that bounce and 53% experiencing missing or lost cheques. Furthermore, 34% have received incompletely filled in cheques.

In response to the research findings and the escalation of the late payment problem, Bacs Direct Credit has launched "Pay Me Direct" - a campaign aimed at encouraging SMEs to utilise automated payments in place of traditional methods. It has created a website - www.directcredit.co.uk/paymedirect - to provide advice and support for businesses with late payment problems, including downloadable resources to help make the switch to automated payments.

"We firmly believe that using automated payments will benefit many businesses with late payment problems. Automated payments provide certainty of payment, immediately cleared funds and heightened confidence with customers. What's more, the delivery of monies is unaffected by external factors such as postal strikes." continued Mike Chambers, "While it's not always possible to pay on time, by encouraging customers and clients to pay money straight into your bank account you can make the process easier and reduce the amount of time the payment process takes."

For more information about Bacs and our services visit Bacs key facts.

Contact Bacs press office.

Notes
(1) Bacs Direct Credit combined business omnibus on late payments, May 2004

The research
Bacs Direct Credit combined business omnibus on late payments, May 2004

• 366 interviews with managing directors, financial directors and other senior managers of businesses with an annual turnover of over £50,000.
• quotas were applied by turnover, region and industry type. All companies had 1-250 employees.

   

  
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