According to a recent survey by the FSB, over 85% of businesses located in London have received late payments over the past 12 months, the Federation of Small Businesses says that the vast majority of the late payments, 67%, are being paid by other small private businesses.
Nearly 50% of businesses in London are trying to collect payments exceeding £5,000. This creates a major obstacle for small businesses that struggle with cash flow and it damages growth potential and profitability.
Larger businesses tend to have more of a buffer than small firms therefore smaller businesses that receive late payments get caught in a vicious circle. One thing that has improved the problem is that the Government has pledged to pay all firms within a period of 10 days from the day of the invoice. Nevertheless a survey by the FSB shows that there are still 20% of the firms getting paid late by the government.
The FSB has asked that the Government ensures all of the different public sectors follow central Government’s lead and pay invoices within 10 days to small businesses and that all of the contractors which the public sector utilises also pay sub-contractors in the same time frame.
Over one quarter of all small businesses in London spend over three hours each week chasing up late payments. To change that, and protect themselves, small firms need to guarantee a contract is in place that spells out the payment terms and includes penalties if payments are late.
It would also help to offer some sort of discount for paying promptly and they can also ask from a small up front payment or deposit before work is started. Because of the current situation in the economy each penny is as important as the next and late payments by clients can mean that staff is not paid on time.