SMEs spend billions tracking down late payments » SMEInsider

SMEs spend billions tracking down late payments

Small businesses in the UK are spending on average £10.8bn a year in an attempt to recover overdue payments, according to research from Bacs Payment Schemes.

The direct debit and credit card firm has found that nearly 80 per cent of all companies which experience late payments say they are being kept waiting one month or longer beyond their agreed terms before receiving payment.

This means that SMEs are spending on average £11,500 each, or £955 a month to try and reclaim late business payments.

The financial effects of late payments are certainly being felt. Over 25 per cent of SME owners involved in the study admitted to relying on bank overdrafts as they wait to receive late payments (24 per cent).

A similar number say that late payments are forcing them to pay their own suppliers late (26 per cent), creating a vicious circle of late payments.

Late payment initiatives enforced by the government are not proving successful with small businesses.

Nearly a quarter (24 per cent) of SME owners say they are aware of measures to oblige large and listed companies to publish payment practices, including Prompt Payment Codes, but the majority of the study (76 per cent) find them ineffective.

There is however, some cause for optimism. Bacs’ research has found that the overall late payment debt appears to have peaked, and is now on its way down.

Figures show that the total amount owed to both large and small UK businesses now stands at £31.3 billion, down from £41.5 billion this time last year. In July 2014, SMEs were owed £32.4bn. Now small firms are only owed £26.8 billion.

‘‘Our figures show that while the late payment landscape is improving in terms of the totals owed, it is at a cost, and a very real one, with SMEs having to dip into their pockets to chase money they are owed,’’ explained Mike Hutchinson, director of scheme support and development at Bacs.