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Late payment remains an issue for smaller firms

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Delays in settling bills are a continuing problem for large numbers of smaller businesses, new research has suggested.

According to a study carried out by the Federation of Small Businesses (FSB), nearly three out of four firms that responded to the poll (73 per cent) said that they had been paid late at some point during the last 12 months.

For a majority of those (77 per cent), other businesses have been responsible for the tardy settling of invoices.

Given their lack of substantial cashflow, smaller enterprises that are late in receiving payments compound the problem by holding back on payments to their own suppliers. Over a third (38 per cent) conceded as much in the survey.

The study also revealed that 43 per cent of respondents are currently waiting for between £1 and £5,000.

In the last year, 56 per cent have written-off invoices worth between £1 and £10,000 because of non-payment.

Although the Government’s commitment to pay all invoices to small firms within 10 days has improved payment times, the FSB said, some 18 per cent of respondents are still being paid late by the public sector. 

The FSB is calling on the Government to ensure that all public agencies follow the lead of central Government and pay all invoices to small firms within 10 days; that all contractors used by the public sector pay their sub-contractors within the same time; and that all private sector companies used by the public sector sign up to the Prompt Payment Code. 

Over a half of small businesses (53 per cent) reported spending between one and six hours per week chasing late payments.

The FSB advised firms to make sure there is a contract in place which both confirms payment times and interest charge penalties if payment is late.

Other steps businesses can take to prevent delays include offering a discount for prompt payment, asking for payments or deposits up-front, and talking to customers to make sure that all sides are aware of the payment terms.

John Walker, the FSB’s national chairman, commented: “There are always going to be companies that pay late, but there are steps that businesses can put in place to make sure that they don’t fall foul of the issue.  

“We are pleased that the Government has stepped-up to the Prompt Payment Code – but there is more work to be done. 

“In the current economic climate, every penny counts and for small businesses a late invoice can mean not being able to pay their staff. We need to see all businesses ensuring that they make payments on time if the private sector is to get on with the job in hand of strengthening the recovery.”