Late Payment to SMEs Exceeds £35 Billion

Overdue stampAlready under pressure from the tough economic conditions of the last four years, Britain’s small and medium-sized businesses are owed debts of £35.3 billion according to the latest research from Bacs Payment Schemes Ltd (Bacs).

One positive factor about the research from the company behind Direct Debit was that the number of SMEs subjected to late payment had actually decreased, down from 861,000 to 785,000 businesses. However, on the down side, SMEs were owed more money than ever; on average, they were out of pocket to the tune of £39,000 at the end of 2010. By the end of 2011, the level of outstanding debt had risen to £45,000 for each firm. The combined debt owed has risen by nearly £2bn over the year from £33.5bn to £35.3bn.

Bacs’ Head of Marketing, Mike Hutchinson, spoke about the his company’s findings:

“Our research highlights the challenges faced by many thousands of SMEs in chasing payments from customers and maintaining a healthy cash flow which is the life blood of any successful business.”

Furthermore, as well as fewer businesses being owed more money than ever, the time to settle debts had also increased. In early 2011 small firms were waiting 28 days to receive payemnt. By late 2011, SMEs said they were waiting 29.6 days, longer than the agreed payment terms.

Additionally 41% of SMEs said that big businesses were the "worst offenders" when it came to late payment, with big business being slower than individuals, other small businesses & private firms and even Government departments.

Philip King, the Chief Executive of the Institute of Credit Management, added:

“Although disappointing it is no surprise that the volume and value of late payments is rising and shows that the Government (through the department of Business, Innovation and Skills – BIS) is right to be prioritising ‘late payment’ as a key focus of resource.”

“Larger companies must do more to pay their suppliers on time, and be obliged to sign up to the Prompt Payment Code (PPC); Government should also take the lead by only awarding public sector contracts to those firms who are part of the Code and can demonstrate a genuine commitment in this area.”

Hutchinson added:

“Ultimately it is an issue for businesses of all sizes to address as prompt payment is not only good for the individual businesses involved in any given transaction, but throughout the whole supply chain.”

Ultimately the research points to the need for SMEs to better manage their cashflow. Bacs recommend automated payments to avoid the need for small and medium-sized businesses to have to "chase" their debts. Factoring and invoice discounting is another option open to businesses.

Further reading can be found in the following business advice articles:

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