Late payments still a major concern for SMEs
British SMEs are having to wait an average of 41 days longer than their original agreed payment terms, before invoices are paid according to recent research.
Research by Bacs Payment Schemes Limited (Bacs) shows this is an increase of 9.5 days on the time SMEs were waiting, beyond agreed deadlines, in June of 2009 (31.5 days), and is contributing to considerable cash flow issues for many British SMEs.
Michael Chambers, managing director of Bacs, said: "Small businesses rely on receiving payments on time so that they can maintain cash flow and ensure the business can run on a day-to-day basis. Our research highlights the continued widespread nature and real impact of the late payment problem, which was affecting 961,000 SMEs in December last year - that's a massive 57 per cent of all British SMEs."
Culprits
Bacs' research shows that large companies are the main late payments culprits, with 37 per cent of SMEs citing them as the worst offenders. However 17 per cent of respondents pointed the finger at sole traders, with the same number blaming fellow SMEs. Six per cent of SMEs cited not-for-profit organisations and Government as the worst payers, suggesting that the pledge made in the 2010 Budget, that Government departments will pay 80 per cent of invoices within five days rather than the usual 30, will be a challenge to meet.
Cash flow remains the most common reason for overdue payments, with four in ten of respondents saying it was the main reason given by customers for paying late. Seven per cent of respondents said their customers blamed the economic downturn for payments being late and a similar number said that being paid late had a knock on effect on their ability to make their own payments. Seven per cent of respondents were told by customers that they had simply forgotten about the invoice, while four per cent were given the reason that 'the cheque is in the post', an excuse soon to be obsolete with the UK Payments Council's plans to phase out cheques by 2018.
Proactive
Mr Chambers said: "SMEs need to be proactive in improving their payment collection processes. Accurate, efficient and prompt invoicing, which clearly states the agreed payment terms, is a must. Nearly 90 per cent of SMEs receive cheques as payment and a similar number of SMEs make payments by cheque, and with cheques soon to be a thing of the past, businesses should be encouraging payment direct into bank accounts, using payment mechanisms such as Bacs Direct Credit."
Although a huge number of SMEs are experiencing late payment of invoices, Bacs' research reveals some encouraging signs of change, with the total amount owed in late payments to British SMEs decreasing from £30.4 billion in June 2009 to £24 billion in December 2009. The average amount owed at any one time to an SME also fell from £28,000 in June 2009 to £25,000 in December 2009. The current figures still however represent a rise of £6.2 billion in the total amount owing since 2007.
Phil McCabe, spokesperson for the Forum of Private Business (FPB), said: "Late payment is a huge problem for small businesses and it's highly disappointing to hear that small firms are having to wait even longer to be paid.
"Late payment is frequently cited as the number one problem facing our members, eclipsing even taxation and regulation. With its damaging impact on a company's cashflow, it can cause a perfectly viable and successful firm to fold."