Late payment woes hit SMEs

Research from automated payment specialist Bacs Payment Schemes has found that UK SMEs are owed £25.9bn, up from £18.6bn a year ago.

The average amount owed to each firm during 2008 stood at £38,000, up more than a quarter on the previous year.

The number of UK SMEs owed money stood at 57 per cent, an increase of seven points on the 2007 figure. Bacs claimed firms are waiting an average of six weeks longer than agreed payment terms.

Half of company owners stated they were going to keep more on top of debtors this year, and about a third of firms claimed that they would look to automate one or more payment processes.

Spending less time on email communication and more time talking to customers is a priority in 2009 for 28 per cent of SMEs. Just one in five is planning to perform credit checks on all new customers.

Phil McCabe, a representative from the Forum of Private Business, said: “In addition to the continued reluctance of banks to lend to small businesses, bigger businesses are trying to create artificial credit lines by squeezing smaller suppliers.”

McCabe claimed many SMEs are wary of exposing larger companies, as many are afraid of souring lucrative relationships.

“There is a genuine fear that if they speak out against these practices or use a legal redress available to them, crucial business will be withdrawn,” he said.

Bacs research found a higher percentage of southern SMEs were hit by late payment woes, with 63 per cent affected. This is compared with 54 per cent in the North and 48 per cent in the Midlands.

Firms in the Midlands were owed on average a massive £69,000, compared with £34,000 in the South and just £21,000 in the North. Midlands-based companies also faced an average wait of 52 days beyond agreed payment terms, compared
with 45.2 days in the South and 26.9 in the North.

Henry Ejdelbaum, managing director of small business finance specialist ASC Finance for Business, agreed that fear of lost business is a concern for many SMEs, but added: “Assertive credit control management does not lose business.”

He also counselled smaller firms to widen their customer base to help offset risks. “The golden rule is never rely on one client only,” he said. “You need to make a strategic decision to step out of your comfort zone and try and find other clients.”