Late payments at all-time high as SMEs wait longer to get paid
- Late payments to SMEs reach all-time high at £33.6billion
- Average amount owed to each firm at highest level
- 1 in 10 bosses say waiting for payment makes them ‘very worried’
- Large companies to blame for SMEs waiting for payment
- Half of all SMEs burdened with late payments
The amount owed to small and medium-sized businesses in late payments has reached an all-time high of £33.6billion since the first late payments survey in September 2007, according to Bacs, the organisation behind Direct Debit and Bacs Direct Credit.
As well as the overall figure being up on the same point 12 months ago when it stood at £30.4billion, the new data also reveals the average overdue amount outstanding to SMEs is a record £39,000 and – worse still – they are having to wait even longer to be paid than last year.
In total half of all UK SMEs – 861,000 firms (across the country), are currently experiencing late payments from customers with business owners saying they are waiting on average 28 days more than the original payment terms to have their invoices settled. As the majority of businesses work to a 30-day payment term, many are now waiting at least two months to get paid.
The worst offenders for paying late, according to the research, are large companies which are behind 48 per cent of SME late payment debt, followed by public/private companies at 20 per cent. Government and not-for-profit are among the best payers, with just nine per cent of SMEs experiencing overdue payments from this quarter. The hardest hit sector is retail and distribution which is owed £16.6billion.
The most frequent excuse businesses hear is that the hold-up is due to internal systems - 55 per cent say they are being told their invoice is waiting for authorisation with the same number hearing that the bill is being processed by accounts. But the old chestnut of “the cheque’s in the post” still crops up fairly regularly, with 41 per cent of businesses giving this excuse.
While late payment is understandably putting a strain on cash flow, it is also increasing stress levels of the business owner as one in nine (11 per cent) report that waiting for important payments makes them ‘very worried’ and leads to constantly checking to see if they have been paid. A further 13 per cent are worried about the consequences that late payment will have on their business.
Mike Hutchinson, head of marketing at Bacs, said the issue of late payments is damaging to businesses which are relying on good cash flow to keep going through the fragile post-recession recovery period.
He says: “The issue of late payment is continuing to get worse for SMEs in the UK at a time when they need to be able to plan ahead for growth and ensure a strong cash flow, but instead they are hanging on for payments which could have a serious impact on their business if they are continually late.
“As our research shows this issue not only hits the business but owners are reporting how it puts them under great stress personally, which has further negative repercussions.
“We urge SMEs to look at how many of the payments they are waiting for can be automated to help them assert more control over their cash flow, and hopefully alleviate some of that stress on the business and its owner.”
Philip King, CEO of the Institute of Credit Management, adds: “This latest research reinforces how important it is that all companies, and more particularly SMEs, agree payment terms upfront and work to cultivate a prompt payment culture in all of their business dealings - one that will benefit everyone concerned.
"More than 1,000 companies have already shown their commitment to a more positive payment culture by signing up to the Prompt Payment Code, but these figures demonstrate that more companies need to change their payment practices in order to combat the detrimental effect of late payment on small business."