Late payments cost UK businesses an annual £46.1bn (US$72bn), according to research from Bacs Payment Schemes (Bacs).
Bacs reviewed small to medium-sized enterprises (SMEs) employing up to 250 people and larger corporates with more than 250 employees across the UK. The research found that SMEs carry the greater debt burden of £39.4bn, while larger corporates are owed only £6.7bn at any one time.
Sixty per cent of UK SMEs report experiencing late payments, with the average overdue payments figure at £38,186. One in four SMEs admits that if the amount owed reached £50,000 it would be enough to send them into bankruptcy. In contrast, the average corporate is owed almost £1m.
UK businesses also report that they bear additional costs of £9.16bn a year due to late payments, with 30% saying they spend around £500 per month due to money owed to them. The research suggests this monthly figure can rise to £10,000 once the various costs associated with bad debts are factored in, such as overdraft fees and admin costs. One in four companies spends over 10 hours a week chasing late payments.
The knock-on effect of late payments means that one in four companies pay their own suppliers late, with 21% saying that late payments force them to rely on bank overdrafts.
In terms of the extended period that companies are kept waiting for payment, 76% 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% and 66% respectively claiming to have been left waiting for invoices to be paid. In England and Wales, the figures stand at 62% and 59%.
In terms of business sectors, the Bacs research reveals that companies in the manufacturing sector (72%) are most likely to be impacted by overdue payments, followed by businesses operating in the services sector (63%) and the transport, retail and distribution sector (48%).
“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,” said Mike Hutchinson, director of scheme support and development at Bacs.
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