NatWest and RBS estimate the collective value of invoices paid outside of the stipulated terms and conditions to be £62.87 billion. As a result, 235,000 SMEs claim time wasted chasing debt has adversely affected their business.
Whilst larger companies have a higher value of invoices paid late, as a proportion of turnover it is smaller businesses which are worst affected. For example, one in five (20%) businesses with an annual turnover of between £250,000 and £500,000 has suffered. This compares with just one in fifteen (7%) of medium and large businesses. For businesses with a turnover between under £1m, the equivalent of 12% of their annual turnover is paid late.
Despite these problems, the research reveals that less than half (45%) of SMEs have taken measures to improve their cash flow. Of these businesses, around one in ten (11%) have hired an in-house credit controller. Only 9% have used invoice discounting and 8% have used factoring.
Peter Ibbetson, chairman small business, NatWest and RBS said: “Bad debts and late payment of invoices are endemic problems for UK businesses. For more than one in ten (12%) firms, over 60% of all their invoices are paid late, causing major cash flow problems for many. What’s concerning is that so few are making use of services from their bank to help alleviate the problem.
“For businesses trading on short-term credit there are financial solutions available which enable them to turn unpaid invoices into working capital… The reality for most small businesses is that they are too busy to spend time chasing payment and managing debtors.”
Stephen Alambritis, head of public affairs, Federation of Small Businesses, said: “Poor payment practices can drastically affect cash flow for small firms at a time when business owners are doing their best to hold on to precious funds. Indeed, figures from BIS show that late payments were responsible for some 4,000 business failures in 2008 alone. Since the economic downturn we have been urging businesses and agencies in both the public and private sector to sign up to the Prompt Payment Code to highlight best practice and help boost the cash flow of small firms during these tough times.”