Smaller businesses experience increase in late payments
Small firms have seen a rise of 40 per cent in late payments, adding to the woes of the economic downturn.
Figures from Bacs Payment Schemes, the organisation that processes direct debits for banks, have shown that overdue payments climbed significantly last year, rising from £18.6 billion in 2007 to £25.9 billion.
Some six out of ten small firms claimed that they had late invoices on their books.
Bacs described the national average for outstanding payments as “frighteningly high” in 2008, having risen by £8,000 compared with the previous year to £38,000.
The Midlands were hit by the worst of the late payments, where the average SME firm had to cope with overdue invoices totalling £69,000.
Manufacturing firms were most likely to suffer delayed payments, with two out of three reporting unpaid bills; service industry firms fared a little better, with 53 per cent saying that they were waiting on overdue invoices.
A quarter of firms cited cash flow problems as the reason given them by customers for failing to settle invoices on time.
Despite the introduction of the government’s Prompt Payment Code, small businesses still experience an average delay of 41.5 days beyond the agreed payment terms for bills to be paid.
The government has also taken action to limit the effects of late payment by setting a cap on the length of time it takes public sector organisations to settle bills. The Companies Act has also been changed to force companies to outline their payment policies.
Michael Chambers, managing director of Bacs, said: “This research demonstrates the pain being felt by many small and medium-sized British businesses during these challenging economic times, and late payments could well be a major factor in the success or failure of these companies in the year ahead – SMEs are currently disappearing at a rate of 86 every day.”
Stephen Alambritis of the Federation of Small Businesses urged larger firms to play their part in keeping smaller suppliers in business.
He said: “We found that out of the 10,000 larger companies that should state in their annual accounts when they pay bills, only 4,000 complied. We asked Companies House what action could be taken against firms that failed to comply, but it said there were insufficient resources to tackle them.
“It is clear the government needs to step in or thousands of good businesses will be driven to the wall by larger companies that are using them, in effect, as a short-term extra line of credit.”