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SMEs suffer from growing late payment culture

October 1, 2012

New research suggests that a large number of small businesses could be in danger of going under – as nearly one million SMEs now suffer late payment problems.

According to the latest statistics released by Bacs, the nation’s small businesses are now collectively owed over £36 billion. In fact, the average amount owed to small businesses stands at £36,000 at any one time.

In the survey, carried out by Bacs Payment Schemes Ltd, over one third of SMEs estimate that a late payment hit of £20,000 would put them out of business altogether.

The total outstanding varies significantly between regions, with the average business in the South being owed £53,000 in overdue payments, compared to £22,000 in the Midlands and £27,000 in the North.

When asked if they experienced late payment problems in general, the responses were similar across the country – with 59% of small businesses saying ‘yes’.

The average time taken before invoices are paid continues to grow – with an average SME now waiting 43.4 days beyond their stated payment terms before invoices are settled. Businesses in the North of the country have to wait even longer than the national average – 46.8 days before their bills are paid.

One unsurprising consequence of the late payment epidemic is that businesses are forced to spend many hours each week chasing overdue invoices rather that concentrating on other aspects of their operations. Bacs estimates that an average firm now spends 14 days each year chasing bills (which works out at £700m per year in time – based on the minimum wage!)

Larger firms are the worst offenders when it comes to paying SMEs late – accounting for 37% of the total, followed by fellow small businesses who account for a quarter of all overdue invoices. Only a small fraction of late payments are owed by Government organisations (6%).

Worryingly, Mike Hutchinson from Bacs said that his firm’s latest research suggests that there is a “growing culture of delaying invoice settlement until long past the due date.”

“We urge SMEs to look at taking control over their cash flow wherever they can by automating payments where possible to save valuable time and administration costs, and hopefully alleviate a little of the pressure on the business and its owner.”