More than three quarters (78 per cent) of small and medium-sized enterprises (SMEs) are having to wait more than one month beyond agreed payment terms before they are paid, a new study reveals.
The worrying research, which was carried out by Bacs Payment Schemes Limited (Bacs), found that more than a third (34 per cent) of SME owners and decision-makers were being forced to rely on their overdrafts in order to make ends meet.
It also found that 11 per cent of SMEs had employed someone externally to help them resolve their late payment woes, with almost half (43 per cent) of businesses spending some £4.4 billion in admin and other costs in their efforts to chase unpaid invoices.
Separate research from the Federation of Small Businesses (FSB) reveals that falling victim to the so-called ‘late payments crisis’ can have dire consequences.
Their study revealed late payments alone cause approximately 50,000 company failures every single year, costing the UK economy a shocking £2.4 billion.
Ian Cass, Managing Director of the Forum of Private Business, a group which campaigns on behalf of SMEs, said: “With billions of pounds tied up in late payments, there is a knock-on effect through the whole UK economy.
“Small businesses are working to tighter margins and with late payments affecting cash-flow it can mean that these businesses can’t invest, can’t grow and in some cases it’s so serious that it can put them out of business entirely.”
Carla Jones, an Associate in Palmers’ Commercial Litigation team, warned that late payments often result in SME decision-makers having to get creative when it comes to finding new ways to plug gaps in their cash flow.
She added that, in the very worst cases, unpaid invoices can force a once-successful firm to go under if it is unable to find a way to make ends meet.
“Late payments often build up rapidly and can quickly have disastrous consequences if business owners do not act fast to reclaim what is rightfully theirs,” Carla said.
“There is a lot of talk in the media these days about the UK’s worsening late payments crisis, and how the recent introduction of the Small Business Commissioner appears to have done very little to alleviate the problem.”
Whilst companies such as FreeAgent are lobbying for a ‘culture change’ to combat the crisis, late payments continue to remain an issue, and businesses need to take action.
Carla added: “Palmers provides a debt recovery service that is straightforward, effective and can help your business deal with its invoice debts quickly and efficiently.
“Such services are vital at a time when there appears to be no end in sight for the late payments crisis.”
For more information about how Palmers can help, or to find out more about our Commercial Debt Recovery Scheme, please contact us.