Late Payments to Small Businesses on the Rise
UK small businesses are owed a record £33.6 billion in overdue payments, research by payment body Bacs has found ― a 10 per cent increase on this time last year.
The survey found that the average amount owed to the country’s small and medium-sized firms stood at £39,000, and businesses were waiting on average 28 days longer than the original payment terms.
The retail and distribution sectors were worst hit, with more than £16.6 billion in late payments owing to firms in these industries.
“The problem is so serious that it could threaten the survival of many businesses trying to get through the fragile post-recession recovery period.”
said Bacs’ head of marketing Mike Hutchinson.
The study of 450 businesses found that larger companies were the worst offenders when it came to paying on time, being responsible for almost half of late payment debt. Government and not-for-profits were the best payers.
Phillip King, chief executive of the Institute of Credit Management, said that the figures showed that all businesses were feeling the strain of difficult economic conditions.
“Companies pay later when cash is in short supply, and cashflow needs to be better managed and protected. But paying suppliers ahead of agreed payment terms establishes a strong customer-supplier relationship, avoids issues like late payment interest charges and is far more likely to lead to more business.”
King urged larger businesses to sign up to the Prompt Payment Code and change their practices. He also advised smaller firms to agree explicit payment terms in advance, invoice promptly, use automated payment methods and charge interest on late payments.
Virtual assistant Ingrid Blake, owner of The Cyber Sec, said she was reluctant to deal with large firms after being made to wait 42 days beyond her usual 14-day terms for payment by Carphone Warehouse.
“It was an absolute nightmare. It just feels like you are undervalued. If you’ve got a plumber or an electrician out, you have to pay them as soon as the work has been done. It just seems like it’s overlooked in a big company because they have so many suppliers.”
“They have automated processes in place. But they have one payment run a week and they’re sitting on your money basically,” she added. “If another big company came to me, I would say that I have a policy of asking for a deposit or an advance payment. Small businesses are much better at paying. It’s much more personal and approachable.”