Late payments mean SMEs owed £26.3bn
Recent reports highlight that almost half of British small and medium-sized enterprises (SMEs) suffer from late payments, totalling £26.3bn of unsettled debt.
This can create bigger issues further down the line, including inability to pay suppliers, staff members and even settle initial start-up debts. It's therefore not uncommon for SMEs to charge late payment fees in addition to original invoices issued.
Snowball effect of late payments
A survey conducted by Bacs, the payment services organisation, shows that 47% of SMEs are left with unreimbursed sums from their customers and clients. This in turn leaves them in an average debt of £32,185.
A third of these SMEs reports that late payment affects their ability to compensate suppliers and 12% note it leaves them unable to pay their own staff.
Whilst businesses often endeavour to counteract late payments by invoicing promptly and even introducing late payment fees in a bid to avoid debt, they don't always succeed in recouping their losses. In December 2016, it was reported that three in four SMEs were forced to write off unpaid debts.
New laws introduced in April
New laws were introduced on 1 April 2017 to address these issues. The rules mean large companies will be asked to publish their average payment times.
Kelly Mills, partner at law firm DMH Stallard, said, "Being paid promptly for many of these SMEs can be the difference between thriving and dying. It’s tough enough to run a successful business without having to spend inordinate amounts of time also chasing customers for payment."
"The new rules brought in by the government are to be welcomed and will hopefully bring a positive change to the way SMEs are paid."
She mentioned also that while "the practice of late payments is ethically unsound", SMEs could also address the problem by ensuring best practice in managing payment systems. This could include prior credit checks, agreeing clear payment terms and even a more prompt invoice system.
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