Late payments continue to be a critical issue for the UK’s small and medium-sized enterprises (SMEs), with a survey by Barclays finding that 85% have experienced the problem in the past two years. Nearly half of these businesses (47%) claim that their worst offenders pay late at least three times a year.
The bank’s research, conducted among more than 1,100 senior decision makers, finds that 22% of SMEs have declined future business from customers who are habitual late payers in the past year in a bid to tackle the problem, which collectively costs UK smaller companies more than £36bn and cause serious cash flow problems.
It also found that the impact of late payments on decision makers is often significant with nearly a third (30%) of respondents, who have experienced late payments in the past two years, having to use personal money or assets to boost their cash flow. One in five respondents has suffered extreme stress as a result, and some cases (11%) late payments have nearly caused a business to fail.
The problem is aggravated by the length of time businesses have to wait. Two thirds (66%) of respondents whose businesses have experienced late payment say that on average they have had to wait more than a month past the agreed payment terms for a bill to be paid, while 11% say they have to wait more than six months.
Not all businesses are in a position to refuse future custom from late payers, and in the last year many have taken action in other ways. Sixty per cent (60%) have communicated more frequently with or chased the customer’s finance team, 32% have threatened to or taken out legal action, and 30% have requested payment up-front.
“Minimising late payments and effectively managing cash flow is crucial for the survival, as well as the growth of small businesses,” said Sue Hayes, managing director of Barclays Business banking. “With one in five businesses that cease trading citing bad debt as the reason, it is vital that SMEs tackle this problem and take action before it is too late.”
Barclays is launching a new service, Creditfocus, to tackle the late payments issue with various levels of service available. Creditfocus Classic, offered free to the bank’s business customers until March 2013, provides five credit checks, subsequent credit monitoring and one debt recovery solicitor letter.
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