Late payments affect nearly three quarters of SMEs but less than half have taken steps to alleviate the problem
New research from NatWest and RBS reveals that 71% of SMEs in the UK have suffered from late payments over the last 12 months, with the collective value of invoices paid outside of the stipulated terms and conditions estimated at £62.87 billion. As a result, 235,000 SMEs claim time wasted chasing debt has adversely affected their business.
Whilst larger companies have a higher value of invoices paid late, as a proportion of turnover it is smaller businesses which are worst affected. For example, one in five (20%) businesses with an annual turnover of between £250,000 and £500,000 has suffered. This compares with just one in fifteen (7%) of medium and large businesses. For businesses with a turnover between under £1m, the equivalent of 12% of their annual turnover is paid late.
Despite these problems, the research reveals that less than half (45%) of SMEs have taken measures to improve their cash flow. Of these businesses, around one in ten (11%) have hired an in-house credit controller. Only 9% have used invoice discounting and 8% have used factoring, both of which are effective means of plugging a cashflow gap and are now widely recognised as appropriate alternatives to mainstream funding methods.
Stephen Alambritis, Head of Public Affairs, Federation of Small Businesses, said: “Poor payment practices can drastically affect cash-flow for small firms at a time when business owners are doing their best to hold on to precious funds. Indeed, figures from BIS show that late payments were responsible for some 4,000 business failures in 2008 alone. Since the economic downturn we have been urging businesses and agencies in both the public and private sector to sign up to the Prompt Payment Code to highlight best practice and help boost the cash-flow of small firms during these tough times.”
Chris Slay, from Skills Provision commented ” Advice on the theoretical solutions available is not of much help, when the reality is that many small companies get dictated to by their clients. Personally I think it is madness for people within recruitment to give extended credit as Clients would have to pay their direct staff weekly or monthly so I have no sympathy for the Recruitment business that have got themselves into trouble by giving 60-120 days – more fool them.”
Late payments are most prevalent in the wholesale industry with 93% of firms reporting that they have experienced late payments in the last twelve months. For one in five (19%) business services companies, over 60% of all payments they received were paid late. The retail industry has fared the best with late payment figures below the UK average of 71%.
| Industry | Experienced late payments | Number of companies that said over 60% of all payments were late |
|---|---|---|
| Wholesale | 93% | 11% |
| Manufacturing | 81% | 18% |
| Construction | 80% | 11% |
| Business Services | 72% | 19% |
| Retail | 66% | 8% |
| UK Average | 71% | 12% |
Author – Peter Arkwright
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