Late payments leave SMEs billions out of pocket

Average amount owed to UK firms has fallen, but the number of companies reporting late payment woes has increased

Breaking the bank: Late payments have a knock-on effect throughout the chain

UK small businesses are out of pocket to the tune of £30.4bn thanks to late payments, according to the latest figures from Bacs Payment Schemes (Bacs).

Although the average owed to individual SMEs at any one time has fallen in the past year from £38,000 in 2008 to £28,000 in 2009 Bacs claimed, the number of SMEs reporting that they are experiencing payment delays rose by more than 65 per cent in 2009 to 1.08 million, compared to 684,000 last year.

Michael Chambers, managing director of Bacs, said: “The average amount outstanding might have gone down, but there are many, many more companies finding themselves with overdue invoices accounting for large amounts of cash which is not flowing into the business as it should be.

“While many businesses that owe money to others do undoubtedly have problems in paying bills quickly, there is a question mark over those that may be ‘playing’ the system and delaying payment for as long as they can.”

The research also pointed to regional differences in late payments. SMEs in the Midlands are burdened with the heaviest late payment bill at £12.6bn, a 29 per cent increase in 2008. Midlands firms are owed an average of £41,000 – significantly more than their counterparts in the North which report an average amount owed of £24,000, or £7.1bn in total for the region.

However, the South saw more SMEs report late payment problems than in any other area, despite the amount owed being the lowest in the country at £22,000.

In terms of sectors, the service sector is suffering the most, with SMEs reporting a combined outstanding amount of £16.6bn, compared with the distribution sector which was owed £9.5bn. Manufacturing also made the list with outstanding invoices valued at £4.5bn.

According to Bacs, the problem is set to get bigger – with 52 per cent of SMEs agreeing that if they are paid late, they will pay their invoices later too.

Chambers added: “It’s important for businesses to have access to the funds owed as quickly as possible. With more than half of all SMEs saying that if their invoices are paid late it means they have to delay payment to other organisations, we must actively work to break this cycle of late payments to help businesses survive through these challenging times.”