A new study from Bacs, the company responsible for handling direct debit and Bacs direct credit in the UK, has revealed that smaller businesses in the UK are currently facing more than £2.16 billion in overdue payments.
The study showed that late payments are still a significant issue for SMEs however, it suggests that things may be improving as the amount they are owed has more than halved in the last five years, falling from £30.2 billion in 2012 to £14.2 billion.
Despite this positive news, almost 640,000 small business told Bacs that they often had to wait beyond agreed terms for payments.
This debt led to 39 per cent of companies spending up to four hours a week chasing late payers, while 12 per cent of SMEs said they employed someone specifically to pursue invoices.
Scarily, nearly one in five of the SMEs that responded said that being owed between £20,000 and £50,000 would be enough to drive them into insolvency, with seven per cent of businesses saying they were already struggling.
As a result of the lack of liquidity within SMEs, 16 per cent said they struggled to pay staff on time and 28 per cent of directors had to reduce their salaries to keep working capital in the business.
To prevent their business’s failure a quarter said they had to rely on bank overdrafts to make essential payments, while 15 per cent find it difficult to pay business bills like energy, rates, and rent.
Late payments can have a severe impact on a company’s cash flow and, as the research shows, lead to businesses accumulating their own debts while they chase payment.
At Gibson Hewitt we have dealt with a number of cases where late payments played an important part in a company’s eventual cash flow issues and insolvency, so please don’t delay, contact us today.