Late payments force SMEs to the brink » SMEInsider

Late payments force SMEs to the brink

Small businesses are bearing the brunt of Britain’s late payment problem. Recent research from Bacs revealed that SMEs are owed over three times as much as larger suppliers, forcing them to make some difficult decisions in order to stay afloat.

More than three quarters of UK businesses are being forced to wait at least a month beyond their agreed contract terms before getting paid.

The late payment situation is forcing 23 per cent of the businesses surveyed to pay their own suppliers late. This could be part of the reason why there is such a discrepancy between the amount owed to small businesses (£32.4 billion) compared to that owed to corporates (£9.1 billion). Even those classed as small businesses admitted to paying their own suppliers late.

“This culture of late payment has a ripple effect down the whole supply chain with many small firms admitting to paying their suppliers late due to business liquidity issues created by outstanding payments,” said Phil Orford, chief executive of The Forum of Private Business.

These difficulties are made worse by the revelation that SMEs are facing additional costs of around £677.00 a month which are directly attributable to late payments, which equates to around £8.2 billion a year, the report said. Of this, some 63 per cent is associated with administration time spent chasing late payments, or around £5.2 billion annually.

The average late payment burden shouldered by SMEs now stands at £31,901. This puts many SMEs perilously close to bankruptcy with £50,000 being the maximum that SMEs in the survey say they could bear before going to the wall. More worryingly, 25 per cent of SMEs state that £20,000 or less is enough to jeopardise their business prospects.

Businesses have made other sacrifices in order to stay afloat despite late payments. Some 20 per cent of directors of such companies say they have taken a cut in salary in order to keep cash inside their businesses, while over a quarter (26 per cent) are having to use their overdrafts to make ends meet.

One in ten are finding it difficult to pay staff on time, factor invoices, and pay regular bills, the report said.

Some 23 per cent claim the late payment situation is forcing them to pay their own suppliers late, passing the problem on to even smaller businesses.

While almost 40 per cent of businesses are aware of government measures to help companies minimise their exposure to late payments, 72 per cent were unconvinced that these measures would speed up payments to them. Some 59 per cent claimed to be unaware of these measures.