FSB: Improved payment practices may have saved 50,000 firms
Better payment practices may have saved 50,000 businesses from insolvency, the Federation of Small Businesses (FSB) has claimed.
A report into late payments titled Time to Act: The economic impact of poor payment practice, suggests that the businesses may have been saved, had payments been on time and as promised.
The report from the FSB also states that policy changes in the past few years have had little impact on tackling the late payment culture that exists in the UK.
It is a situation that has worsened in the last five years too, as 30% of payments are now late, compared with 28% in 2011.
Late payments are impacting on the ability of small businesses to run effectively and grow, as 37% said they faced cash flow difficulties as a result.
Some 30% said they were forced to use overdraft facilities in order to stay afloat while 20% said their profits took a hit as they struggled to deal with the late payments.
The FSB claims that 50,000 small firms were forced to cease trading in 2014 as a result of poor payment structure, at an estimated cost to the UK economy of £2.5 billion.
This is a sizable chuck of finance, especially as the economy has taken a hit following the outcome of the EU referendum earlier in 2016.
National Chairman at the FSB, Mike Cherry, has suggested that late payment practices are becoming the norm and has warned of the outcomes it may have on the wider economy.
As well as driving some small businesses towards liquidation or other forms of insolvency, late payments can also severely disrupt cashflow.
While some firms may find alternative finance options to rectify their situations, others may be left with few possibilities.
The FSB report that the average value of every late payment in 2016 is now £6,142, and when coupled with tight budgets, increasing business costs and an uncertain economy, it can have make it very difficult for firms to succeed.
By Phil Smith