SME’s could go out of business due to late payment debt

It has been revealed that 59%, or 6 out of 10,. SME’s in the UK suffer from late payments, and the number of SME’s currently waiting on late payments has passed the million mark, resulting in a collective debt that adds up to nearly £36.4bn. This is a large enough amount to actually force some SME’s out of business.

The average sum nationally that is owed to an SME is £36,000, yet 35% of SME’s have said that late payment debts of up to only £20,000 would close them to shut down. These statistics were revealed by a survey from Bacs Payment Schemes Limited. The company behind Bacs Direct Credit and Direct Debit.

In the South of the country, the average amount owed in overdue payments to the region’s smaller companies stands at £53,000, yet almost half (49 per cent) of those surveyed said that it would take less than that – up to £50,000 – to put them out of business.

Midlands SME’s face similar problems; while the average outstanding amount is much lower, at £22,000, 37 per cent of companies said unpaid invoices of up to £20,000 could cause their business to fail. In the North, where the average debt is £27,000, more than a quarter (27 per cent) said the same.

The new research, carried out in July, showed that around six out of ten UK SME’s (59 per cent) experience late payments. In the South, the proportion of smaller businesses facing overdue settlement echoes the national average, ahead of northern companies at 55 per cent but behind Midlands businesses (63 per cent).

The average UK SME experiencing late payment now has to wait a staggering 43.4 days beyond payment terms for their invoices to be paid – northern businesses are waiting even longer, with an average delay of 46.8 days before bills are settled.

One consequence of the late payments culture is that hard-pressed businesses are being forced to invest an average of almost 14 days every year – or almost three working weeks – just in chasing overdue bills. Even based on minimum wage rates, that means delayed invoice settlement will cost smaller UK businesses just short of £700 million in 2012 alone*.

Nationwide, the majority (37 per cent) say the worst offenders are large companies, although 25 per cent of companies surveyed claimed fellow SME’s were also guilty of paying late. Government and not for profits were right at the bottom of the offenders’ list, with just six per cent of SME’s experiencing late payments at their hands.

The most common excuse SME’s hear is that the delay is down to cash flow problems within the company being invoiced, with 47 per cent saying this is the reason they’re given.

The research also shows that it isn’t only the businesses which are suffering – the people responsible for the finances pay an emotional price, too. Of those surveyed across the UK, 18 per cent said that they were anxious about the consequences of late payments on their business while a further eight per cent said overdue invoices left them very worried, constantly checking for payments because of the potential impact on the viability of their business and could affect jobs.

Mike Hutchinson from Bacs said: “Our newest research demonstrates that even more SME’s are facing difficulties with late payments, with potentially serious implications for their businesses.

“Cash flow remains key for companies to stay afloat during challenging economic times, yet there does seem to be a growing culture of delaying invoice settlement until long past the due date.

“As our research shows, this issue not only hits the business but owners are reporting how it puts them under great strain personally, which has further negative repercussions.

“We urge SME’s 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.”