SMEs owed billions in late payments

Small and medium-sized enterprises (SMEs) are owed £39.4 billion in late payments, research by Bacs Payment Schemes (Bacs) has found.

Bacs, the company behind automated payments such as Direct Debit, surveyed 350 firms and found that UK firms are owed £46.1 billion.

SMEs are being forced to shoulder most of the debt burden as corporate firms are owed £6.7 billion in comparison.

Key findings:

  • 60% of SMEs are experiencing late payments
  • the average SME is waiting for £38,186 in late payments
  • 1 in 4 SMEs believe they would go bankrupt if the total amount owed grew to £50,000
  • 25% of firms have paid their suppliers late as a result of delayed payments
  • 21% say that late payments force them to rely on bank overdrafts
  • a quarter of firms spend more than 10 hours per week chasing debts.

SMEs are also paying additional costs of £9.16 billion a year as a result of late payments such as overdraft fees and admin charges.

Nearly a third (30%) of surveyed firms reported that they spend around £500 per month as a consequence of delayed payments.

Other key findings:

  • Scotland (67%) and Northern Ireland (66%) have the highest levels of late payment among SMEs
  • 62% of businesses in England and 59% of firms in Wales are owed money
  • firms in the manufacturing sector (72%) are most likely to have late payment problems
  • firms in the services (63%) and the transport, retail and distribution sectors (48%) also are vulnerable to late payments.

Mike Hutchinson, from Bacs, said:

"Despite the positive signs emerging about the financial state of the nation as a whole and the fact that we are thankfully moving out of recession, SMEs, which everyone agrees are the drivers of a successful economy, are being held back because of the increasing pressures of late payments."

Mike Cherry, national policy chairman of the Federation of Small Businesses (FSB), described late payments as a "major headache" for SMEs and called on the government to take action:

"The FSB wants the government to tackle the issue head-on in its Small Business Bill. Small firms simply can't be expected to lend interest free to larger companies, which late payments and extended payment terms force them to do.

"In addition, the Prompt Payment Code needs to have more power and authority to help the smaller firms. For example, ensuring the largest businesses spell out their payment terms. The EU Late Payment Directive is very clear that is payment terms exceed 60 days, they must explain why.

"It's time for big companies to take their responsibility to pay on time seriously."