Small firms facing £36bn shortfall from late payments

MORE than a fifth of small firms have refused to do business with customers that have failed to pay their bills on time despite late payments hitting £36 billion across the UK and causing “serious cash flow problems”.

Nearly half of small businesses said the worst offenders fail to pay them on time at least three times a year, according to a survey published today by banking giant Barclays.

Some 85 per cent of companies have been hit by late payments in the past two years, with a third taking legal action to recover money they are owed and a further third demanding payment upfront instead.

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Sue Hayes, managing director of Barclays Business, said: “Minimising late payments and effectively managing cash flow is crucial for the survival as well as the growth of small businesses.

“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.”

She added: “Faced with a continually challenging business environment, small businesses clearly have no other option than to take action against customers who repeatedly pay late.

“Whilst it goes against all natural business instincts to turn customers away, it is entirely understandable when weighed up against the overall impact of the late payment on the future of the business.”

Two-thirds of companies have had to wait more than a month beyond their deadlines for payments, while 11 per cent of firms reported waiting for more than six months.

A third of business owners said they have had to use their own cash to keep their companies going while waiting for payments, while 11 per cent said slow-paying customers have “nearly” caused their business to fail.

Figures released in September by the Bankers’ Automated Clearing Service (Bacs) showed that the average amount owed to small businesses is £36,000.

Yet the Bacs survey also found that 35 per cent of companies reported that late-payment debts of just £20,000 would be enough to put them out of business.

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Stuart Mackinnon, a Federation of Small Businesses in Scotland spokesman, told The Scotsman: “Late payments are an enormous issue for companies.

“While it’s heartening that some businesses are taking action, all it can take is just one large late payment to push a business over the edge.”

Mackinnon added: “The Scottish Government’s statistics continue to show that it is hitting its ten-day payment target. Other public bodies have different timescales for paying their bills.

“But the main role for public bodies is to encourage large companies to pay their subcontractors in the same timescale that they get paid, especially on large infrastructure projects.”