British businesses bear late payment burden of £30bn

A million plus small and medium sized British businesses have now been hit by late payments – and collectively, they’re owed a staggering £30.4 billion, according to Bacs Payment Schemes Limited (Bacs), the organisation behind Direct Debit and Bacs Direct Credit.

That’s a rise of more than £11 billion over two years in the amount outstanding to the country’s SMEs (figures stood at £18.6 billion in 2007).

While the average owed to individual SMEs at any one time has fallen in the past year from £38,000 in 2008 to £28,000 in 2009, the number of SMEs reporting that they are experiencing payment delays rose by just over 65%, up from 684,000 in 2008 to 1,085,000 in 2009.

Michael Chambers, managing director of Bacs said: “The average amount outstanding might have gone down but there are many, many more companies finding themselves with overdue invoices accounting for large amounts of cash which isn’t flowing into the business as it should be. While many businesses which owe money to others do undoubtedly have problems in paying bills quickly, there is a question mark over those who may be ‘playing’ the system and delaying payment for as long as they can.”

Bacs’ research also highlights significant regional differences. SMEs in the Midlands are shouldering the largest late payments bill at £12.6 billion, up by almost a third on 2008 (29%). Midlands companies are each owed an average of £41,000, more than their counterparts in the North which say they have outstanding invoices of £24,000 on average, making a combined total overdue payment there of £7.1 billion.

But in the South of England more SMEs report problems with late payments than in any other area, although the total value of these outstanding payments is the lowest in the country at £22,000. Nevertheless, that adds up to a debt of £10.6 billion.

And it’s the service sector which is shouldering the bulk of the late payments debt in 2009 – SMEs in the service industry have combined outstanding bills worth £16.6 billion, compared with the distribution sector which shows late payments of £9.5 billion, and the manufacturing industry, with outstanding invoices valued at £4.5 billion.

Cashflow is the most common reason for overdue payments, with 30% of businesses surveyed citing this as the main excuse given. But 6% of late payers claim they forgot all about it, with the same number relying on the age old excuse “the cheque’s in the post”.

And the problem is only set to get bigger – 52% of SMEs agreed that if they’re paid late, they’ll pay their invoices later too, and that’s evidenced by a third of SMEs who report they are paying others later this year than in 2008.

Michael Chambers said: “It’s important for businesses to have access to the funds owed as quickly as possible, and insisting on payment straight into bank accounts by Bacs Direct Credit can help with that.

“With over half of all SMEs saying that if their invoices are paid late it means they have to delay payment to other organisations, we must actively work to break this cycle of late payments to help businesses survive through these challenging times. We encourage SMEs who are experiencing late payment difficulties to visit paymedirect.co.uk for guidance and advice on avoiding payment problems. It is time that the wider business community pulled together to lever itself out of this damaging cycle.”