Nearly half of SMEs being paid late

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Almost half of small to medium-sized enterprises (SMEs) are not being paid on time, a new survey has revealed.

According to Bacs Payment Schemes Limited (Bacs), 47 per cent of SMEs have customers and clients who have strayed beyond agreed payment terms.

Figures showed that the average late payment debt currently stands at £32,185, which works out to a staggering £26.3 billion collectively across all of the affected firms.

This is having some serious consequences for SMEs, with 32 per cent of those impacted by late payments revealing it has forced them to pay their own suppliers late.

Furthermore, 12 per cent said it affects their ability to pay their own staff on time, while 20 per cent struggle to pay business expenses such as rent, rates and energy bills.

Chasing up these payments is proving to be a further drain on SMEs' resources, with 42 per cent spending up to four hours a week trying to get their money.

In addition, 18 per cent were found to be spending up to £500 a month attempting to deal with the problem.

Interestingly, many SMEs appear to be unaware of efforts by the government to tackle this ongoing issue.

Nearly three-quarters admitted they did not know about ministers' plans to force large and listed companies to disclose payment practice details.

However, 38 per cent of SMEs said they are not convinced that government intervention would help to reduce the number of late payments

The Bacs survey indicated that nearly a third of SMEs are turning to overdrafts to compensate for cash-flow shortfalls resulting from late payments.

Meanwhile, nearly one in five revealed they are sacrificing their own personal salaries to keep vital funds within the business.

One in three SMEs who experience late payments are being forced to wait at least a month beyond the date when payment was due, while a quarter have had to wait more than 60 days beyond the agreed terms.

Mike Hutchinson, spokesperson for Bacs, commented: "These figures clearly show the human cost that late payments have on SME business owners. 

"Very large figures sometime obscure the personal impact and sacrifice that many small to medium-size business owners have to bear in silence. 

"Adopting better invoicing practices and making payment terms absolutely explicit can help ease some of these pressures and we would urge businesses to look at automated payments like Direct Debit to help reduce the time and money they are spending to recover late payments due to them.”

Interestingly, SME owners do not seem to believe the UK's decision to leave the European Union will have a big impact on payments arriving on time.

Some 83 per cent of respondents said they think Brexit will have no impact on late payments, while 76 per cent believe that when the process of leaving the EU is complete, late payments would not get worse.

This latest study comes shortly after the Federation of Small Businesses (FSB) warned that late payments are jeopardising the very existence of some SMEs.

The organisation has estimated that 50,000 business closures could have been avoided in 2014 had payments been made on time and as promised.

The FSB said these collapses are costing the UK economy about £2.5 billion, which would have represented a "vital uplift" to Britain's gross domestic product at a time when business confidence is waning.