How late payment issues are affecting SMEs

Managing the cash flow of a business is an essential part of the daily running of a firm, but it is made more difficult when contractual terms are not met.


Various studies reveal that late payments are placing SMEs under pressure as they cannot access the finances they need.


More than a third of businesses told a survey by recruitment firm Alexander Daniels that late payment was the single biggest challenge they have faced in the last five years.


Without finance it can be virtually impossible to grow and the likelihood of long-term success dwindles as a result.


Late payments leave firms facing financial turmoil, as they are forced to alter their budgets and delay other deals until payments are completed.


More than three quarters of businesses revealed they were forced to wait at least a month beyond their agreed payment terms to receive money, which was negatively impacting upon their business.


This can leave many small businesses facing the continuous threat of company insolvency as any unforeseen event could prove insurmountable if finances are not available to rectify the situation.


Seeking advice on the issue is recommended if a firm is unsure of how it can proceed, as solutions may be available that can improve their financial situation.


Processes are in place to aid small firms, including the Prompt Payment code, but the Federation of Small Businesses (FSB) revealed that only one in five firms has confidence in it.


They feel it does not address the culture that exists relating to how companies are paid, highlighted by the fact that 39% of firms reported being offered payment terms over the minimum of 30 days set out by the code.


Some 43% of firms also reported that they waited 90 days or more past their agreed payment date to receive payment, placing incredible stress upon their monthly cash flows.


A wide range of reasons for late payment were reported to the FSB, although the main reason will be of particular concern to small businesses.


In nearly half of incidents involving late payments, there was no excuse or justification for it, suggesting it is not a priority for firms to pay through the supply chain.


Internal invoice issues caused a delay in 35% of cases while customers were found to extend terms without consent 34% of the time.


Lost invoices or invoices not being received were also major issues, highlighting the need for small businesses to stay on top of their financial situation.


Increasing communication could have a big impact and may ultimately help smaller firms to receive payments in a more prompt fashion.


By Phil Smith


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