SMEs now facing £18.6 billion late payment problem
Regional differences apparent in nation's fight against overdue invoices
A massive £18.6 billion is the figure put on outstanding payments owed to Britain's small-to-medium sized enterprises (SMEs) - a leap of £2.6 billion in the last year*. That's the main conclusion to come out of research commissioned by Bacs Payment Schemes Limited (Bacs), the company behind Direct Debit and Bacs Direct Credit.
When quizzed as part of Bacs' annual business omnibus, SME owners from around the country claimed fewer of them were experiencing late payment problems than a year ago (59% in 2006 versus 51% today). However, further probing from Bacs about the value of standing money unearthed a bleaker picture. Figures showed that the average amount owed to an SME at any one time is £30,000 - an alarming figure considering almost a third (29 %) of those surveyed claimed they could go bust if faced with overdue invoices of up to just £20,000.
The not-for-profit industry body behind Direct Debit and Bacs Direct Credit also found that almost a fifth of SMEs (19%) now emply a dedicated person to chase in late payments - losing an average of 17 working days** a year to this onerous task.
Figures also revealed some stark differences in the regions, with SMEs from Greater London faring far worse than their counterparts in other areas. They are:
- the most likely to experience a problem with late payments - 65% versus the national average of 51%
- owed an average of £51,000 at any one time, that's £21K over the national figure
- spending, on average, 38 days a year chasing in late payments - that's more than double the amount of time spent by companies in any other regions, and failure.
In comparison, SMEs in the North East (including Yorkshire & Humberside) are the least likely to experience problems - 42% have issues with late payments at one time or another versus the national average of 51%. And North West SMEs have the best results when it comes to chasing in overdue invoices - 45% have experienced late payments from customers from time to time, far less than the national average, and they spend an average of just 12 days a year chasing guilty suppliers.
Commenting Michael Chambers, managing director of Bacs said: "Our latest business figures paint an interesting picture about the culture of late payments across Great Britain - with some surprising regional pockets of success, and failure. But the most striking thing - at a national level - is that the scale of late payments has grown in value yet again, despite companies investing a significant amount of time and money to secure the demise of the problem."
"Making the decision to emply someone to chase in late payments is a big step for any SME company - and it can be effective. But it can also be time consuming and repetitive month-on-month if the right tactics aren't employed from the start. British SMEs need to be much smarter about tackling late payments and should use a range of solutions, including automated payments, to stamp out the problem once and for all."
To help SMEs in their fight, Bacs has produced five handy hints that every business owner should consider:
- Credit check clients and suppliers up front. If you knew a company had experienced financial problems in the past, would you still give them 30 days credit?
- Once you have signed a contract with a trading partner, encourage them to pay all invoices straight into your bank account by Bacs Direct Credit. Include your sort code and account number on invoices along with the message "Pay Me Direct". This small step can save time on payment reconciliation and queuing at the bank to pay in cheques
- If you have prompt payers, why not reward them? Offer discounts to early payers encouraging them to keep the money flowing in
- Get familiar with UK business law, especially if you have customers that frequently pay you late. In the UK, all business owners and managers are entitled to claim reasonable debt recovery costs and Statutory Interest under late payment legislation. For more information go to www.payontime.co.uk/legislation/legislation_main.html
- Practice what you preach! Save your own suppliers time and money by paying them using Bacs Direct Credit. It's also worth settling your regular business bills by Direct Debit. This approach could help you negotiate better payment terms and avoid penalty charges on any overdue invoices or bills.
* In 2006, Bacs research showed that monies owed to GB SMEs stood at almost £16 billion (£15,994,000,000)
** Figures calculated on the basis that:
- an average SME in Great Britain spends 2.5 hours a week chasing late payments
- there are 52 weeks in a year
- the typical working day is 7.5 hours long
Continental Research conducted 458 telephone interviews with SME decision makers in September 2007. The sample was representative of the SME audience in GB.
For more information about Bacs and our services visit Bacs key facts.
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