How Can SMEs Fight Back Against Late Payments?

Britain's Late Payment Problem

By Sue Hayes, Managing Director, Barclays Business banking

Almost every small and medium sized business in the country will have experienced late payments from customers at some point in their life span, and 85% of SMEs admit they’ve experienced this problem in the last two years. But what is the best way to tackle this problem? For many business owners it can be very difficult to decide whether to take any action at all, and if they do so, what the best course of action is.

The impact of a regular late payer on an SME’s cash flow can mean the difference between running an efficient company and one that is striving to make ends meet. This is particularly true when faced with a continually challenging business environment both domestically and abroad. With nearly half (47%) of those claiming their worst repeat offenders have paid late three times a year or more, it’s not surprising this is having a significant knock-on effect on businesses’ cash flow.

In total, UK SMEs are currently owed more than £36 billion in late payments according to the latest Bacs figures. Therefore, it’s vital that business owners start to stand up against this problem.

A few courageous business owners are doing just this.

New research from Barclays shows that nearly a quarter (22%) of SME decision makers have declined future business from customers in the last year, in an attempt to tackle late payments. Whilst it goes against all natural business instincts to turn customers away, it is entirely understandable when weighed up against the overall impact on the future of the business.

Not all businesses are in the position to turn custom away, so some are taking action in other ways. Almost two thirds (60%) of decision makers have communicated more frequently with or chased the customer’s finance team, almost a third (32%) have threatened or taken out legal action, and around the same amount (30%) have requested payment upfront.

It can be both a tough choice and time-consuming to tackle late payers head-on, but minimising late payments and effectively managing cash flow is crucial for the survival, as well as the growth of a small business. SMEs have every right to challenge those who cause issues with their business, but before taking action they should seek advice and consider the various options that could solve the problem. They should always think hard about whether that action is appropriate for the company they intend to confront and they can certainly look to suffer less by ensuring they take the right approach.

Of course, not all customers will pay late all the time, therefore getting the treatment right between a one-off late payer and a regular late payer is important. It’s also crucial to assess just how late the payments are. 66% of SMEs who have experienced late payments say that on average they have had to wait more than a month past the agreed payment terms for a bill to be paid, and one in ten (11%) saying they have to wait more than six months. On the whole it appears that business owners need to get tougher on the issue.

For more information on CREDITFOCUS, a Barclays credit-checking service, which helps owner managers assess the creditworthiness of the business they trade with, please visit www.creditfocus.co.uk

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