Late payment issues: The dangers for SMEs
Failing to pay invoices on time is putting pressure on many of the UK’s small and medium sized businesses according to the Institute of Directors.
The IoD asked its members about issues with payment and two thirds of the firms revealed they were not getting paid on time.
Failing to get regular payment is having knock-on effects on growth plans and how business finances are managed.
Essentially, a problem anywhere along the supply chain will impact many firms further down the line as payments will continually be pushed back.
Only a third of firms said they had not experienced any issues – a concerning factor given there are millions of small businesses in the UK.
Of the companies in the survey to experience problems, 47% said the main reason for late payments came as a result of overly complex terms and conditions or very overbearing payment systems. One in eight firms said a change in payment terms was to blame for the delay while just 5% said a dispute over an invoice was the main reason for late payment.
Half of SMEs said late payments had forced them to alter their business plans while 13% were unable to grow in the way they planned due to insufficient funds.
A further 10% said they were forced to reorganise their financing arrangements in a bid to make the process of getting paid easier.
More than a quarter of firms revealed they had delayed payment to some of their suppliers due to not being paid themselves. In some instances, insolvency practitioners can provide guidance and advice on how the situation could be improved, including whether a company could be streamlined to cut costs.
The Prompt Payment Code – an initiative from the Government to tackle late payment – now has 1,700 companies signed up but this is a small total when compared to the number of UK businesses overall.
Those that agree to the Code commit to paying suppliers on time but there is always more that can be done.
By Phil Smith