Late payment problems for small business

Businesses in the UK are waiting on over £11 billion collectively, with SMEs owed an average of £33,600 each, according to research by Direct Credit.

With around one-third of SMEs experiencing late payment problems, the key reason for paying late was deliberate withholding of payment according to 88 per cent of SMEs experiencing late payment problems.

The problem is exacerbated by the large amounts of money owed - small businesses with late payment problems are owed an average outstanding amount of £20,330, while medium sized firms are owed £98,400 on average. Late payments amounting to £50,000 have the potential to put 55 per cent of SMEs out of business.

For those that do manage to stay afloat, late payments have a considerable impact on day-to-day running and long-term business viability. Ten per cent will not be able to pay their workforce if payment is a week late, while 38 per cent of businesses with late payment difficulties struggle to pay their own bills on time. Fifty-eight per cent of all SMEs stated that they could increase productivity if they didn't have to chase invoices.

However, despite acknowledging the extent of the problems late payments cause, 63 per cent of SMEs admit that they had failed to pay at least one invoice on time, creating a perpetual circle of bad debt.

Mike Chambers, managing director of BACS Payment Schemes Limited, the company behind Direct Debit and Direct Credit, said: "It's worrying to see the extent of the problems that late payments are causing in this business sector. A single late payment can have serious implications not just for one business, but others further down the line."

Payment methods also contribute to the problem, with 57 per cent having received cheques that bounce and 53 per cent experiencing missing or lost cheques. Furthermore, 34 per cent have received incompletely filled in cheques.

Automated payments

In response to the research findings and the escalation of the late payment problem, Direct Credit has launched "Pay Me Direct" - a campaign aimed at encouraging SMEs to utilise automated payments in place of traditional methods. It has created a website to provide advice and support for businesses with late payment problems, including downloadable resources to help make the switch to automated payments.

Mike Chambers said: "We firmly believe that using automated payments will benefit many businesses with late payment problems. Automated payments provide certainty of payment, immediately cleared funds and heightened confidence with customers. What's more, the delivery of monies is unaffected by external factors such as postal strikes.

"While it's not always possible to pay on time, by encouraging customers and clients to pay money straight into your bank account you can make the process easier and reduce the amount of time the payment process takes."