How are SMEs managing to survive late payment issues?

Late payment issues for small businesses are constantly highlighted as a growing concern in the UK, as a lack of finance can leave many firms teetering on the brink of meltdown.


According to Bacs Payment Schemes, more than three quarters of UK businesses are waiting for at least one month beyond their agreed payment terms before receiving finance.


This is placing severe pressure on company cash flows and is forcing business owners to make tough decisions to ensure the survival of their firms.


Around 20% of directors involved with companies experiencing late payments revealed they have reduced their salary to keep cash available to help the business.


Furthermore, 26% are forced to use their overdrafts every month to ensure ends meet while 23% have suggested it is impacting on their own ability to pay their suppliers too.


One in ten are also experiencing issues relating to paying staff on time, sorting invoices and even paying off regular bills.


It is not just survival of a business that can be impacted by late payments either, as it can disrupt business growth as the firms are simply unable to finance it.


The whole supply chain can be impacted and this can be filtered down from one supplier to the next, meaning the issue is very difficult to resolve.


While the level of finance that is owed to small businesses has fallen, the percentage of companies that are affected is unchanged from a year ago.


SMEs are currently owed £32.4 billion, down from £39.4 billion in January 2014 while larger firms – those with 250 staff or more – are owed around £9.1 billion.


The data reveals that 59% of firms surveyed are currently impacted negatively by late payments while SMEs can face further costs that can be directly related to a lack of payment.


It is estimated that £677 a month is required for those firms affected, equating to around £8.2 billion yearly – of this 63% relates to the administrative costs and time required to chase late payments.


The Bacs data suggests that the late payment burden for SMEs is now nearly £32,000, placing many close to bankruptcy.


In the survey, business owners suggested that £50,000 was the maximum an SME could face before the assistance of insolvency practitioners is required.


However, 25% of SMEs questioned suggested that £20,000 would be enough to jeopardise their prospects, showcasing the importance of managing and chasing payments.


By Phil Smith


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