Late payments push small firms towards financial meltdown
Small businesses are struggling to manage their finances effectively as they lack the necessary tools to tackle late payments.
Research from Business Expert highlights that 50,000 small businesses are being forced to close every year as a result of the late payment of invoices.
Nearly nine in ten small firms have also been paid late at least once in the last year, which is forcing businesses to take risks with their finances.
This is particularly an issue as small firms are the most susceptible to financial shortcomings as they have less resources compared to their larger counterparts.
Some 68% of firms in debt revealed they use the money to overcome cash flow issues, meaning they are relying on their debt to cover operation costs, rather than for growth or development.
The public sector is the worst offender for late payments, as 91% of suppliers to public sector contracts are paid late â€“ suggesting late payments are considered the norm.
Although government initiatives are designed to tackle late payments, the research also found that they have had a minimal impact.
Of the businesses that did record their payment times, just 29% settled invoices within a 30 day period, meaning firms need to source other methods to cover any financial shortfall.
Alternative finance options can provide a short-term solution but do not represent a long-term strategy for tackling financial issues.
Those facing cash flow issues may want to consider an independent business review in order to take an unbiased look at costs and operational processes.
Such methodology should ultimate help a business to develop a practical plan that can deliver results and support its longevity.
By location, businesses in Northern Ireland are most likely to be paid late, as 93% of invoices are not paid within the stipulated terms of contracts.
Those in East Anglia and the East Midlands also face issues, as nearly 70% of invoices are paid late in both regions.
Furthermore, a study by FreeAgent found that Peterborough, Sheffield and Stoke-on-Trent are the worst-offending cities for the late payment of invoices belonging to sole traders.
Around 70% of invoices in Peterborough are paid late, while a similar proportion was noted in the other two cities as well.
By Phil Smith