UK Companies face a late payment burden of £46.1 billion
New research from Bacs Payment Schemes Limited (Bacs) shows that the late payment debt burden shouldered by UK businesses has reached £46.1 billion.
Bacs, the company behind Direct Debit and Bacs Direct Credit, looked at Small to Medium Enterprises (SMEs employing up to 250 people) and large corporates (employing 250 plus people) throughout the UK. The research shows quite clearly that SMEs are being forced to carry the larger debt burden of £39.4 billion, while corporates are owed £6.7 billion at any one time.
Sixty per cent of UK SMEs are now experiencing late payments, with the average SME waiting for £38,186 in overdue payments. One in four SMEs admit that if the amount they are owed grew to £50,000 it would be enough to send them into bankruptcy. In contrast, the average corporate is owed almost a million pounds.
On top of that, UK businesses are being forced to bear additional costs of £9.16 billion a year due to late payments with around a third (30 per cent) saying they're spending around £500 a month as a consequence of money owed to them. And, according to the research, this figure can be as high as £10,000 a month as a result of the various costs associated with bad debts, including the likes of overdraft fees and admin costs - with one in four companies spending over 10 hours a week chasing late payments.
The knock-on effect of late payments means that a quarter (25 per cent) of companies are being forced to pay their own suppliers late, with one in five (21 per cent) saying that late payments are forcing them to rely on bank overdrafts.
In terms of the extended period that companies are kept waiting for payment, more than three quarters (76 per cent) of companies surveyed said settlement was being delayed a minimum of a month beyond their agreed payment terms.
Businesses in Scotland and Northern Ireland experience the highest levels of late payments with 67 per cent and 66 per cent respectively claiming to have been left waiting for invoices to be paid. In England and Wales, the figures stand at 62 per cent and 59 per cent
In terms of business sectors, the Bacs research reveals that companies in the manufacturing sector (72 per cent) are most likely to be impacted by overdue payments, followed by businesses operating in the services sector (63 per cent) and the transport, retail and distribution sector (48 per cent).
There is some good news, however; 71 per cent of those companies which claim not to have late payments say that robust invoicing practices were likely to reduce overdue payments, while just over half (51 per cent) say that receiving payments by Bacs Direct Credit also reduce payment delays.
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.”
FSB National Policy Chairman Mike Cherry said: "These latest figures are a further reminder of the major headache caused by late payments. Not paying on time and lengthy terms can have a seriously detrimental impact on small firms. 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 if payment terms exceed 60 days, they must explain why. It's time for big companies to take their responsibility to pay on time seriously.”