A survey carried out by the Banking group, Close Brothers has revealed that two-thirds (66%) of small businesses are struggling because their clients fail to pay their bills on time.
Among the 900 small business owners who were polled, it was found that this problem is particularly serious for 87% of SMEs in Northern Ireland, 73% in London and 72% in the South West.
It was also revealed that the industries most affected by late payments include:
- transport (78%)
- manufacturing (74%)
- printing (73%)
Government figures suggest that small and medium enterprises are collectively owed more than £26 billion in overdue payments. Aside from creating cash flow problems, late payments have the potential to damage a business’ reputation and harm its credit ratings, making it difficult for them to secure future funding.
Neil Davies, chief executive at Close Brothers, said:
“Late payments are a very real issue for SME business owners and in some cases, directors are having to defer their own salaries, increase their overdraft or pay their own suppliers late to ensure they remain liquid, causing the vicious circle to continue.”
Prompt Payment Code
The government’s Prompt Payment Code (PPC) intends to support businesses which are under pressure thanks to overdue payments.
32 of the biggest suppliers to the government have voluntarily committed to pay 95% of invoices within 60 days and are working towards adopting 30 days as the norm.
The PPC sets the standards for best practice for both businesses and suppliers dealing with late payments and invoices, ensuring everyone is paid on time and is offered clear guidance on procedures.
Despite this however, 74% of small businesses don’t feel suitable legislation exists to counteract overdue payments from debtors. One in four firms say they have even been forced to seek legal advice in search of a resolution.