Late payments still causing SMEs to struggle

Many SMEs that rely on credit from other businesses are struggling to cover their costs in the current climate, with more than 80% of all business to business sales being made on credit.


It is estimated that SMEs in the UK typically owe their suppliers an amount equal to roughly one fifth of their total assets.


However, failures to meet payment plans are causing financial hardship and worry for many businesses and, as a result, the closely-knit relationships between large and small companies in the supply chain are being stretched.


According to the Forum of Private Business, more than one million SMEs in the UK face late payment difficulties, making it one of the biggest challenges faced by the sector.


The amount of money tied up in late payment has risen to nearly £37 billion, with the most acute effects being felt by the construction sector.


However, many other sectors are feeling the strain on their finances, leaving many SMEs having to explore all available options.


Banks reducing the size of available overdrafts has caused financial difficulty for many as a previous route to finance has now been drastically reduced.


Uncertainty over payment for some companies is leading to fractious relationships with banks and creditors.


For companies reliant on that sort of funding to sustain their businesses through tough times, the squeeze is being felt more than ever before.


In the past it has been suggested that larger companies should provide greater levels of support for smaller ones, but so far this has been slow going.


Some solutions to these issues can end up being incredibly expensive and therefore place even more pressure on the companies involved.


However, unless something is done to encourage payments to be made on time, the same issues will continue to plague many SMEs in the UK.


By Phil Smith


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