The UK’s late payments culture is posing a serious threat to the survival of small and medium-sized enterprises (SMEs).
Over one third (34%) of SME owners have highlighted late paying clients as a major difficulty, according to research from Close Brothers Invoice Finance.
Of these, 65% said that the main area of concern was with cash flow, with 17% warning that that the effects were so serious that it was affecting their ability to continue trading.
A further study by insurance company Zurich has revealed that over half of SMEs operating in the UK are now owed money, with the total value of unpaid invoices amounting to £255 billion. Over 20% of these firms are owed in excess of £25,000, with 9% owed more than £100,000.
Although successive governments have attempted to tackle the issue, a solution has yet to be found. David Thomson of Close Brothers said that more needs to be done by regulators to better protect SMEs:
“The UK’s record on late payments is very poor – while other countries have seen late payment rates come down as their economic fortunes have improved, the UK’s business culture seems to be one in which it is acceptable not to pay SMEs on time. SMEs often lack the power to hold large organisations to account and need greater support from government to help them do so.”
The first spike in late payments can be traced back to the 2008 economic downturn. With cash-flow crises occurring across the board, organisations struggled to pay their bills on time.
However, despite the fact that the economy has somewhat recovered and interest rates have remained low, there has been no subsequent dip in the late payments trend. Significant resources are having to be devoted to chasing up money owed, with almost 80% of organisations spending at least one whole day per month on the activity, including 19% that spend more than one week.
“SMEs need better statutory protection and an independent champion prepared to take action on their behalf,” David Thomson said. “Many SMEs feel very uncomfortable challenging larger businesses, on which they may be reliant for substantial amounts of business, over late payments – this is where regulatory action is essential.
“It’s crucial that SMEs try to grip this issue themselves. You need to be crystal clear about your payment terms at every stage of your dealings with customers – and to chase invoices the moment they become due; consider credit checks on new customers and don’t accept poor practices from your existing customers.”
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