The UK's smaller businesses face a bill of £2.16bn to chase overdue payments, according to Bacs.
This is in spite of the dramatic drop in overall late payment debt. New figures show a decrease in money owed to UK SMEs from £30.2bn in 2012 to £15.2bn in 2017.
Out of 1.7 million UK SMEs, 640,000 say they have to wait beyond agreed terms for payments. Here is how it breaks down across the UK:
• Scotland has highest proportion (46%)
• Northern Ireland (39%)
• England (37%)
• Wales (34%)
This study shows that almost a third of companies face delays of at least a month beyond their terms, and nearly 20% have to wait more than 60 days.
39% of companies are spending up to four hours a week chasing late payers, and 12% of SMEs employ someone specifically to pursue outstanding invoices.
Why do late payments happen?
Many customers, be they companies or individuals, pay their suppliers late to ease their own cash flow problems. Sometimes without realising this pushes the financial risk onto their suppliers. This creates a vicious circle where all companies in that supply chain are affected.
However, there are also several other reasons for late payments:
• Your actions (e.g. late deliverables).
• Accounts person/team is on holiday - especially common for small businesses.
• Operational issues - needs sign off from multiple departments.
• Change in direction for the plan of which your business is a part.
What does this mean for UK SMEs?
The figures put forward by Bacs are a cause for concern for UK SMEs.
Almost one in five (19%) of SMEs affected by overdue settlements admit that if they were owed between £20K and £50K, they'd be forced into bankruptcy. 7% already say they're in that danger zone.
• 16% struggle to pay staff on time.
• 28% of company directors reduce their salaries to keep essential working capital inside their business.
• 32% say that overdue invoice settlement forces them to pay their own suppliers late.
• 25% rely on bank overdrafts to make essential payments.
• 15% find it difficult to pay business bills (energy, rates and rent) when they're due.
This report suggests that cash flow is a major issue for many UK SMEs. Being a victim of late payments puts companies at risk of insolvency proceedings including winding up petitions, administration and liquidation.
What can they do?
Small businesses need to become much more proactive in their approach to late payments.
More than two thirds of UK SMEs who don't have a late payments problem say being paid by Bacs Direct Credit helps. 29% say the same for collecting monies owed by direct debit. Both are viable avenues for SMEs to try.
By working with companies that have volunteered into the Prompt Payment Code you will ensure faster payment. SMEs can also take advantage of the European Union's Late Payment Directive that gives SMEs the right to compensation when bills are paid late.
If an SME is close to insolvency or worried about its financial situation due to late payments, it is best to consult a financial adviser.
Company Rescue have vast experience helping SMEs obtained money owed and turning around businesses to improve cash flow.
To find out how Company Rescue can help your business combat late payments, get in touch today.
If the terms on invoices are longer like 60-90 days so they are not late but are just long payment terms then it might be worth considering "invoice finance". This is where money is forwarded in advance against the invoice. For more information on this then please look at companyfundingoptions.co.uk