Late payments causing cash flow difficulties for SMEs

British businesses are still facing late payment troubles, with Sage’s latest annual study revealing the vast majority of firms are not paid within 30 days.

The late payment study shows that 60% of companies waited at least 60 days for payment in the last six months.

This can put serious pressure on to cashflows, especially in situations where suppliers are not paid on time as this can disrupt the entire supply chain.

Nearly half of the businesses questioned by Sage said they had to wait 90 days or more and despite this being an improvement on 12 months ago, it is still a cause for concern.

One in ten firms revealed late payments left them in major financial difficulty, a slight increase from 12 months previously.

Others reported additional serious issues, with 3% paying staff wages late, 2% unable to meet overheads and a further 2% seeing their credit rating get downgraded.

Business turnaround is one option in these cases but managing finances effectively can often be difficult if a lot of money is owed to a company.

This issue is compounded when the company that is waiting on payment is then unable to pay one of their suppliers as a result.

Worse still for SMEs are reports that some larger businesses are extending their payment terms by a further 45 days in some instances.

Despite government attempts to get businesses to speed up payment with the Prompt Payment Code, a number of issues remain.

A recent survey found that 26% of firms had not heard of the scheme while just 8% said they felt the scheme was ‘effective’.

While it attempts to get suppliers to pay on time, it is difficult to overrule existing payment terms that will have already been agreed.

Many small businesses feel that a 30-day payment term is adequate but believe they are powerless to challenge larger firms as they are scared they may lose their business if they do.

However, this may be the best option if failed payments are placing the small firms at risk of financial ruin, as it will at least mean a business can trade more effectively.

By Phil Smith

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