Late payments to SMEs leap 40 per cent to £26 billion
British small and medium size enterprises (SMEs) are now owed a massive £25.9 billion after overdue payments rocketed by almost 40 per cent over the last year, up sharply form £18.6 billion. That's the latest finding from ongoing research into the problem conducted by Bacs Payments Schemes Limited (Bacs), the organisation behind Direct Debit and Bacs Direct Credit.
And while the national average of outstanding payments was frighteningly high in 2008 - £38,000, up £8,000 on 2007 figures - it's the Midlands which has been hardest hit with the average SME claiming overdue invoices amounting to a staggering £69,000.
The number of SMEs finding themselves owed money across Great Britain also increased to almost six out of every ten, up from 51 per cent in 2007 to 57 per cent in 2008. And it's manufacturing which sees the highest incidence of late payments, with almost two thirds (65%) of SMEs in this sector experiencing a delay in invoices being paid, compared with 53% of those in the service industry.
Bacs research into late payments also indicates that Government's Prompt Payment Code has some in-roads to make if it's going to encourage swift settlement invoices. This latest business omnibus shows that GB SMEs are waiting an average of 41.5 days beyond agreed payment terms for invoices to be settled.
The most common cause of late payment is cashflow problems, with almost a quarter (24%) saying this is the excuse they're given. There are differences across industries, though - SMEs in the service sector cited the economic downturn as the reason they were given most often (16%), where as 35% of manufacturing and 30% of distribution SMEs were told cashflow was the issue.
What GB SMEs are planning for 2009:
- More than three quarters of SMEs (78%) said they were looking to make their business more efficient in 2009.
- Almost a third (32%) said they are planning to automate more of their essential business payments to save time on admin, for example, settling invoices by Bacs Direct Credit instead of less reliable forms of payment like cheque.
- 50% of SME business owners questioned said they were going to keep more on top of debtors.
- Over a quarter (28%) said they were planning to spend less time on email and more time talking to customers.
- But only one in five (20%) said they were planning to credit check all new customers.
Bacs has developed a series of hints and tips for SMEs looking to alter everyday working practices in 2009 and encourage quicker settlement of invoices. For more information and impartial advice go to: http://www.paymedirect.co.uk/
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Michael Chambers, managing director of Bacs, said: "This research demonstrates the pain being felt by many small and medium sized British businesses during these challenging economic times, and late payments could well be a major factor in the success or failure of these companies in the year ahead - SMEs are currently disappearing at a rate of 86 everyday (1).
"Action must be taken to address this crushing payment issue; but businesses also have to take responsibility for helping themselves where they can. For instance, while the Government has bought in a system of paying public sector invoices within ten days (2), surprisingly, three quarters (66%)of British SMEs haven't replicated that and still offer lengthier payment terms. Encouraging payment straight into bank accounts by Bacs Direct Credit could also help to shorten delays and avoid "cheque in the post" excuses."
Adding his thoughts, Phil McCabe, spokesman for the Forum of Private Businesses (FPB): "Late payment and bad debt are the scourge of business owners. Often, they are major factors behind businesses being forced to close. The amount of money owed to small firms has soared over the past year as big businesses seek to create credit lines for themselves by squeezing their suppliers. In addition, despite the Government's pledge to pay its suppliers within 10 days, public organisations continue to be among the worst culprits.
"The problem has intensified as a direct result of the credit crunch and economic downturn, as credit from suppliers has increasingly dried up. With the knowledge that prompt payment can mean the difference between trading profitably and trading at all, many small businesses are now looking to the year ahead with considerable trepidation."
View our latest GB economic downturn map for latest statistics.
For more information about late payments and how to tackle them head on, please go to http://www.paymedirect.co.uk/ where Bacs has developed a series of hints and tips for encouraging prompt payment.
About the research:
On behalf of Bacs, the business to business research specialists, Continental Research, conducted 463 quantitative telephone interviews with owners, FDs, MDs of GB SMEs between 3rd and 14th November 2008. The sample profile was weighted to be representative of GB SME businesses.
Footnote:
(1) John Wright, chairman of the Federation of Small Businesses, said that 86 small firms were going out of business every day, highlighting the need for extra help, including reductions in regulations and cuts in payroll taxes. To review the article he was quoted in go to: http://www.timesonline.co.uk/tol/news/politics/article5505354.ece
(2) Small businesses to receive payments within 10 days, government pledges http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3231604/Small-businesses-to-receive-payments-with-10-days-Government-pledges.html
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