Is waiting longer for payments costing SMEs?
Small businesses in the UK must wait an extra 23 days on average to receive payments compared to larger companies, according to new figures.
The Asset Based Finance Association (ABFA) revealed that businesses with turnovers of less than £1m waited an average of 71 days for payments in the last year.
That compares with companies with a turnover of £500m or greater where payment took an average of 48 days.
As a result, this places pressure on the cash flows of these smaller companies and is increasing the need for potential business restructuring methods in order to resolve the situation.
The ABFA says many big businesses are taking advantage of their powerful hold over their smaller suppliers by gradually lengthening payment terms.
With their cash flow weakened, the SMEs concerned can then struggle to pay wages, meet tax requirements, invest in new staff or equipment and cover any other major outlays.
This is despite pressures from the government to make large companies sign up to the Prompt Payment Code – as SMEs now wait a week longer for payments than before the financial crisis.
In 2006, it took an average of 64 days for them to receive payment, but that figure has now risen to 71 days, placing further pressure on businesses.
“It’s alarming to see how much longer SMEs are waiting to receive payment compared to just a few years ago and it’s putting some SMEs in financial difficulties,” said Jeff Longhurst, chief executive of the ABFA.
“It’s more important than ever that these businesses are aware of the options they have to get around the roadblock of late payment, and free up the funds they need more quickly.”
Given the fact that the economy is recovering, more SMEs than before should experience an upturn in their business, but ensuring they receive prompt payments will be vital if they are to take advantage.
By Phil Smith