SMEs in the UK are missing out on over £250 billion of cash flow every year due to late payments to SMEs through invoices and associated costs according to a new report by Siemens Financial Services.
The report emphasised how integral SMEs are to the UK economy. SME’s growth is being unfairly stunted by large numbers of delayed and late payments. Delayed payments from customers can threaten SMEs’ ability to trade, stifle appetite for growth and recruitment and, in the worst cases, lead to insolvencies. Compared to larger companies, slow and late payments tend to hit small businesses hardest.
Businesses with an annual turnover of under £1 million wait on average 72 days for invoices to be paid. while an annual turnover of between £1 million and £10 million wait on average 53-54 days. This is significantly longer than the largest businesses, which typically wait just 48 days.
It is clear that late payments are an acute cause of concern for SMEs. In a survey of 1000 SMEs, 23 per cent reported that late payments had put them at risk of closure. Furthermore, insolvency trade body R3 has said that late payment is a major factor in one in five corporate insolvencies.
Greater attention to invoicing is a key solution to the problem of late payment, even selling responsibility to an invoice finance company. This provides essential working capital so the business can then invest in expanding its operations without having to wait for, or chase, payment of outstanding bills.
Invoice finance companies now provide more funding than ever before to SMEs, with funds across the UK recently exceeding £20 billion. This gives SMEs the funds and opportunities to look to new investments, take on extra staff or more adventurous marketing.
SMEs are the lifeblood of the UK economy, so with invoice finance giving small businesses a boost, this can only be of benefit to UK economic growth.
James Salmon Operations Director at the Credit Protection Association said “We are raising this subject yet again as late payment is our passion. At CPA, our number one goal is to challenge the late payment culture rife in Britain and to get people to honour their credit terms. If we can get customers to stop using their suppliers as a form of unofficial finance, then one of the biggest scourges on SME’s will be banished. We no longer want to see wonderful small businesses with excellent ideas being forced to fold because of cash flow constraints caused by bad payment practices. It is one of the biggest killers of SME’s and if we can cure this disease the British SME’s will be able to thrive and carry the Economy on to new and greater strengths. CPA wants to fight late payment through education and by providing the tools to avoid it.”