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SMEs hit by late payment epidemic

Published on Friday, March 20, 2009

SMEs (small and medium size enterprises) are now owed a staggering £25.9bn in late payments, a statistic which has increased by 40% over the last year.

The findings are published by Bacs, the industry body responsible for governing the rules behind the Direct Debit and Direct Credit payment schemes.

Companies operating in the manufacturing industry have been hardest hit by the new figures, with 65% of SMEs in this sector having experienced delays in invoices being paid, compared with 53% of the services sector. Midlands-based companies are estimated to be owed a frightening £69,000 in overdue invoices.

Last year, the Government implemented its Prompt Payment Code intended to smooth over some of the friction that exists between SMEs, their suppliers and customers due to overdue payments. Michael Chambers, Managing Director of Bacs, offered his thoughts: "Action must be taken to address this crushing payment issue; but businesses also have to take responsibility for helping themselves where they can. For instance, while the Government has brought in a system of paying public sector invoices within ten days, surprisingly, three quarters (66%) of British SMEs haven't replicated that and still offer lengthier payment terms. Encouraging payment straight into bank accounts by Bacs Direct Credit could also help to shorten delays and avoid 'cheque in the post' excuses."

The implications of such payment delays for small businesses, at a time where cash-flow is top of the agenda, are huge. This is highlighted by the alarming fact that SMEs are disappearing at a rate of 86 per day.

Adrian Stafford-Jones, Managing Director at Albany Software, last year commented on what at that point was a growing issue, "As stated, all businesses clearly need to address financial processes - and could be doing more to help themselves. Why are businesses still struggling with paper payments when they could almost eliminate cash-flow problems using electronic funds transfers (EFT)?"

He continued, "EFT packages provide solutions that allow Bacs payments, reduce transaction costs and decrease data errors. Business owners can relax, knowing that monthly payments will be collected by Direct Debit (DD) automatically on a date agreed at the outset of negotiations. The business owner takes control of collecting payments, eliminating the need for endless cheque chasing."

With the technology readily available to aid SME's in these tumultuous financial conditions, it just remains a question of when many will turn to the solution - and whether or not it will be too late when they do.