Late payments ‘hurting small and medium-sized firms’

  • Anil Kanda
  • 15 Apr, 2010

The cheque is in the post… or is it?

More small and medium-sized businesses are suffering as their customers make late payments, research suggests.
A study by RBS and Natwest found that 71% of firms had suffered from late payments in the past 12 months.
Meanwhile the latest data from payment group BACS said small firms waited an average of 41 days longer than original agreed terms, before being paid.
About 4,000 firms collapsed in 2008 due to late payments, the Federation of Small Businesses (FSB) said.
The RBS study said that in the UK, firms were owed about £62bn in bills that were unpaid beyond the agreed deadline. Of this, about £15bn was more than 120 days overdue.

Huge problem

Late payments are a problem for all firms because they disrupt their cashflow.
If payments do not arrive on time, they have to use their own funds to cover the delay, or go to their banks to try and extend overdrafts.
It also forces them to invest time and resources on chasing payments.
“It’s a huge problem for small businesses,” Stephen Alambritis of the FSB told the BBC.
“When a small firm is paid late, it’s forced to go to the bank and with the banks being a bit tetchy at the moment, it’s a difficult position.
“Banks are not loaning and giving overdrafts which means small firms feel like banks themselves. Large firms are improving their cash flow on the back of smaller suppliers.”
Mr Alambritis called on large, blue-chip firms to “ethically” pay on time.

Endemic

The chairman of small business banking at RBS, Peter Ibbetson, said that there were services to help companies overcome the problem of late payments.
“Bad debts and late payment of invoices are endemic problems for UK businesses. What’s concerning is that so few are making use of services from their bank to help alleviate the problem,” he said. Most firms have payment terms that include a deadline – however, enforcing it is difficult. Companies do have a legal right to demand interest on unpaid bills.

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