Overdue payments land small businesses with £2 billion cash shortfall

Smaller businesses (SMEs) are facing a £2.16 billion deficit as they chase overdue payments, according to Bacs.

The company, which is behind direct debit and Bacs payments in the UK, has revealed that, of the 1.7 million SMEs in the UK, almost 640,000 are waiting beyond agreed terms for payments.

37 per cent of English SMEs continue to report problems with overdue payments, despite a significant drop in overall late payment debts.

The latest new figures show that across the UK, SMEs are owed £14.2 billion, compared with five years ago when the figure was more than double, at £30.2 billion.

The research also showed that 39 per cent of SMEs are spending up to four hours a week chasing overdue payments.

Almost one in five (19 per cent) of SMEs affected by late payments are owed between £20,000 and £50,000, which could potentially lead to bankruptcy, with 7 per cent admitting they are already in that danger zone.

Late payments have in some cases led to problems with payroll, with 16 per cent conceding they had struggled to pay their staff on time, while 28 per cent of company directors have had to reduce their own salaries to maintain sufficient business cash flow.

Of those surveyed, 25 per cent rely on bank overdrafts to make essential payments, and 15 per cent struggle to pay utility bills and business rates when they fall due.

A significant issue for SMEs is the amount of time they are being kept waiting beyond their previously agreed payment terms. Almost a third of companies face delays of at least a month beyond their invoice terms, with almost 20 per cent waiting in excess of 60 days before being paid.