Bacs research shows late payments are costing SMEs over £2 billion a year

If you run a small business, you’ll probably already be painfully aware of the threat that late payments can pose to your business. Delayed payments might not make that much of a difference if your business is big enough to take a temporary hit. However, for many SMEs delayed payments can be the difference between survival or going under. Few people, other than accountants, have truly appreciated the scale of the problem: that is, until now. Research by Bacs Payment Schemes Limited has discovered that the UK’s smaller businesses are facing a total bill of £2.16 billion to chase overdue payments.

Over a third of SMEs claim to have been affected by late payments

So what did Bacs discover? Well, the research found that nearly 640,000 of the estimated 1.7 million smaller UK firms finish up waiting longer than the agreed terms for payments. That problem, according to the research, is particularly troublesome in Scotland and Northern Ireland. The percentage for England, although still too high, is not quite as bad. In Wales, however, Bacs found just over a third of small businesses claim to have been affected by late payments.

How long are SMEs having to wait for payments to be honoured? Well, the research found that almost one third of small businesses are being forced to wait at least a month beyond their payment terms: whilst a fifth of SMEs are having to wait more than 60 days before payments are honoured.

39 per cent of SMEs are also spending up to four hours a week chasing late payers

The Bacs research found that 39 per cent of SMEs are also spending up to four hours a week chasing late payers, while 12 per cent of small business have been forced to employ the services of a dedicated employee to specifically chase outstanding invoices.

What affects are late payments having on small businesses? Well, Bacs found that almost one in five small businesses affected by overdue settlement admitted that being owed between £20,000 and £50,000 would be enough to drive them into bankruptcy. 7 per cent said they are sadly already approaching that limit/ threshold.

Of those facing late payments, 16 per cent of small businesses struggled to pay their staff on time, while 28 per cent of company directors were forced to reduce their own salaries to keep essential working capital inside their businesses.  What’s more, late payments were shown to have a knock-on effect on other businesses. Nearly a third of SMEs said that overdue invoice settlement forced them to pay their own suppliers late. A quarter had to rely on bank overdrafts to be able to make essential payments, and 15 per cent of SMEs found it difficult to pay business bills such as energy, rates, and rent on time.

Despite the gloom cast by the latest Bacs research, there is a slightly more positive light to be drawn from the figures, and that’s that over the last 5 years there has been a significant drop in the overall late payment debt. The Bacs figures show that UK small businesses are owed £14.2 billion: however, that figure was over twice that 5 years ago, standing £30.2 billion.

Speaking about that point, Mike Hutchinson, of Bacs, said:

“Falling late payment totals is welcome news for small to medium size businesses (SMEs) and for the wider economy. It’s good to hear that relatively simple measures like collecting money by Direct Debit or insisting on payment by Bacs Direct Credit are helping to keep SMEs out of the late payments trap. We’d advise all businesses to investigate if automated payments can help them control their cashflow more effectively.”

If you are a small or medium-sized business owner and would like advice on improving your cashflow, invoicing, payments or any other business matters, speak to Steven Glicher accountants. For further help and information call Stockport accountants, Steven Glicher, on 0161 485 8007 or email info@stevenglicher.co.uk

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