According to a study of 471 businesses by financial transaction processor Bacs, a third of small and medium-sized enterprises report that big businesses are behind late bill settlement.
Those operating in the manufacturing industry are most likely to suffer delay at the hands of the big corporates, where 41 per cent of the sector’s SMEs experiencing late payment said large companies were to blame for overdue invoices.
The public and charity sector are meeting more of their bills on time – SMEs experiencing late payment on invoices to government and not-for-profit organisations almost halved from 11 per cent to 6 per cent in the last six months of 2010.
See also: How to deal with late payment
More than half (53 per cent) of the country’s SMEs have experienced late payment, up from 45 per cent in June 2010 – with the average owed at any one time standing at £27,000.
When companies do finally get paid, the length of time they’ve had to wait is an average of 39 days beyond agreed payment terms, an increase of nearly eight days since June 2009.
Businesses in the North are waiting an average of 52 days longer than anticipated.
Small businesses are being forced to spend an average of half a day every week pursuing payment, equating to more than 158 million man hours lost to the British economy just in chasing bill settlement.
Mike Hutchinson, head of marketing at Bacs says, ‘Late payment remains a big problem for British SMEs with billions overdue against bills, causing small businesses to use up millions of man hours in chasing invoice payment.’
Businesses seek protection from late payment
Two thirds of credit professionals want the government to protect small businesses from late payments, research finds.
According to a survey by the Institute of Credit Management, more than a third (36 per cent) of credit control personnel are chasing late payments up to three days sooner than they were a year ago, up slightly on 2010, with 20 per cent chasing four days sooner.
Some 86 per cent of businesses say they use credit and business data checks for new customers and suppliers, compared with just 37 per cent last year.
Late payments remain a major issue for businesses, which accounts for the sharp increase in the use of data checks and ongoing monitoring, as firms keep a closer eye on new and existing customers and suppliers.
ICM chief executive Philip King says, ‘Late payments continue to put businesses under added strain, in an already fragile economy. The survey shows that businesses are struggling to tackle late payments and the majority would like government support, but it is also up to professional credit managers, and specifically members of the ICM, to take the lead in reducing the impact of bad debt and improving levels of best practice.’
Late payment continues to threaten businesses
Many small and medium-sized businesses (SMEs) are in danger of going under as a direct result of late payments, research finds.
Nationally, the average amount owed to a small businesses is £36,000, yet 35 per cent of small companies report that late payment debts of up to just £20,000 would be enough to put them out of business, according to a survey by Bacs Payment Schemes.
In the South of the UK, the average amount owed in overdue payments to the region’s smaller companies stands at £53,000, yet almost half (49 per cent) of those surveyed say that it would take less than that – up to £50,000 – to put them out of business.
Midlands SMEs face similar problems; while the average outstanding amount is much lower, at £22,000, 37 per cent of companies say unpaid invoices of up to £20,000 could cause their business to fail. In the North, where the average debt is £27,000, more than a quarter (27 per cent) say the same.
The research, carried out in July, shows that around six out of ten UK SMEs (59 per cent) experience late payments. In the South, the proportion of smaller businesses facing overdue settlement echoes the national average, ahead of northern companies at 55 per cent but behind Midlands businesses (63 per cent).
The average UK SME experiencing late payment now has to wait 43.4 days beyond payment terms for their invoices to be paid, with northern businesses waiting even longer, with an average delay of 46.8 days before bills are settled.
One consequence of the late payments culture is that hard-pressed businesses are being forced to invest an average of almost 14 days every year – or almost three working weeks – just in chasing overdue bills.
Even based on minimum wage rates, that means delayed invoice settlement will cost smaller UK businesses just short of £700 million in 2012 alone.
Nationwide, the majority (37 per cent) say the worst offenders are large companies, although 25 per cent of companies surveyed claimed fellow SMEs were also guilty of paying late.
Government and not-for-profits are right at the bottom of the offenders’ list, with just six per cent of SMEs experiencing late payments at their hands.
The most common excuse SMEs hear is that the delay is down to cash flow problems within the company being invoiced, with 47 per cent saying this is the reason they’re given.
Mike Hutchinson of Bacs says that even more SMEs are facing difficulties with late payments, with potentially serious implications for their businesses.
‘Cash flow remains key for companies to stay afloat during challenging economic times, yet there does seem to be a growing culture of delaying invoice settlement until long past the due date.
‘As our research shows, this issue not only hits the business but owners are reporting how it puts them under great strain personally, which has further negative repercussions.’
The amount owed to small and medium-sized businesses in late payments has reached an all-time high of £33.6 billion since the first Bacs late payments survey in September 2007, research finds.
The new data from payments company Bacs reveals the average overdue amount outstanding to small and medium-sized businesses (SMEs) is a record £39,000 and they are having to wait even longer to be paid than last year.
In total, half of all UK SMEs 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.
The worst offenders for paying late 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 9 per cent of SMEs experiencing overdue payments from this quarter. The hardest hit sector is retail and distribution which is owed £16.6 billion.
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. The excuse “the cheque’s in the post” is used by 41 per cent of businesses.
Mike Hutchinson, head of marketing at Bacs, says that 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.’
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.’
Tackle late payments say businesses – UK Business Forums survey
p>A survey from the UK Business Forums found 40 per cent of small firms think faster payments would aid their company the most, while only eight per cent think increased lending from banks would be most beneficial.
Dan Martin, administrator for UK Business Forums, says it is ‘interesting’ amid talk of lending from banks that company owners just want the money which is owed to them.
‘The government’s pledge for public sector departments to pay small businesses within ten days is welcome but that action needs to be extended to the private sector and big businesses in particular,’ he adds.
In addition, 18 per cent of respondents want a cut to small firm’s corporation tax and 13 per cent think less red tape for the company would be most preferential.
Credit control experts Graydon UK recently said it would be difficult for the government to stick to its pledge to pay within ten days as many firms currently rate it as a slow payer.