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
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
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
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
- 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