Late payments costing smaller UK businesses more than £2bn a year

The UK’s smaller businesses are facing a total bill of £2.16 billion to chase overdue payments, according to Bacs Payment Schemes Limited.

Bacs research has found that almost 640,000 of the estimated 1.7 million smaller UK firms wait beyond agreed terms for payments. The highest percentage of these are in Scotland, followed by Northern Ireland. England is close behind while just over a third of Welsh companies say they experience late payments.

39% of companies are spending up to four hours a week chasing late payers, while 12% employ someone specifically to pursue outstanding invoices. Firms are being kept waiting beyond their previously agreed payment terms. Almost a third face delays of at least a month beyond their terms and nearly 20% are having to wait more than 60 days before being paid.

Despite this there has been a significant drop in the overall late payment debt. New figures show that UK small businesses are owed £14.2 billion, in contrast with five years ago when the total was double that, at £30.2 billion.

Mike Hutchinson, from 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.”

Almost one in five small businesses affected by overdue settlement admit that being owed between £20,000 and £50,000 would be enough to drive them into bankruptcy. 7% say they are already approaching that limit.

Of those facing late payments, 16% struggle to pay their staff on time, while 28% of company directors reduce their own salaries to keep essential working capital inside their businesses.

It is not only the businesses who are being affected by these issues. Nearly a third say that overdue invoice settlement forces them to pay their own suppliers late. A quarter rely on bank overdrafts to make essential payments, and 15% find it difficult to pay business bills such as energy, rates, and rent on time.

There is hope that the Prompt Payment Code, which 32 major Government suppliers have recently signed up to will aid in faster or at least timely payments being made. The Crown Commercial Service (CCS) encourages businesses to sign up to the Prompt Payment Code especially in the case of small businesses as it aids cash flow.

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, TaxAssist Accountants are here to help. Get in touch on 01224 637100 or use our handy contact form.

Date published 13 Jul 2017 | Last updated 13 Jul 2017