For in-depth analysis on wider issues surrounding business credit risk look no further than Graydon’s In Credit blog.

Late payments continue to threaten SMEs

05 October 2012

Late payment debt is high enough to put SMEs in the UK out of business. SMEs have a total collective debt of almost £36.4 billion. Research shows that many are in danger of going under as a consequence.

The average amount owed to a SME nationally is £36,000.  However 35 per cent reported that late payment debts up to £20,000 would be enough to out them out of business. Bacs Payment Schemes Ltd conducted the research.

One consequence of late payments is that hard-pressed businesses are being forced to invest an average of almost 14 days every year chasing overdue bills. Bacs calculated, that even on minimum wage rate, delayed invoice settlement will cost smaller UK businesses just short of £700 million in 2012.

The research concurs with a survey conducted by Graydon earlier this year. The report showed that late payments threatened the survival of small firms but few used a formal procedure to tackle the issue.

Of those surveyed 51 per cent said it was a problem and 23 per cent indicated it was a serious concern. Sixteen per cent of respondents stated that they had almost been put out of business as a result.

Late payments have a domino effect down the supply chain. Fifty-six per cent of those who had experienced late payments had been forced to pay their own suppliers late as a direct result.

The most common excuse SMEs hear is that the delay is down to cash flow problems within the company being invoiced, with 47 per cent saying this is the reason they're given.

Establishing a relationship with a potential customer first is important. Checking if they have a history of late payments first will save you both time and money.

The research highlights the importance of continually monitoring both suppliers and customers. Using a Credit Risk Monitoring Service, such as Graydon's, allows you to keep an eye on your supply chain and make informed decisions relating to credit.

Bacs found that the average amount owed varied depending on the location of the business. In the south of the country the average amount owed stands at £53,000, yet almost half of those surveyed said it would take up to £50,000 to put them out of business.

The average outstanding amount in the Midlands and North stands at much lower at £22,000 and £27,000 respectively. Small businesses in both regions indicated that unpaid invoices of up to £20,000 could cause their business to fail.

Five top tips to avoid late payments:

  • Do a credit check: Buy a credit report from a recognised agency that collects trade payment information.
  • Sign your customers up: Ensure your company has got signed contracts with all customers that clearly state your payment terms.
  • Prevent excuses: After dispatching goods, ensure your customer has received them and that there are no problems.
  • Use the telephones to chase: Some experts claim using a telephone is 80 per cent more effective than a letter.
  • Develop a 'friend': Establish a personal rapport with people in your client's accounts department.

For more tips on how to get paid on time click here.  

 

This entry was written by Ranjna, posted on 05 October 2012 Bookmark the permalink. Follow any comments here with the RSS feed for this post. You can post a comment.

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