IT contractors worst hit by late payments

Wednesday 12 August 2015

New figures taken from a survey by the Tungsten Corporation have revealed that the average UK small to medium-sized enterprise (SME) is owed £40,000 as a result of late payments. When applied to the 5.2 million SMEs in the country, this means that as much as £212 billion could be tied up in late payments.

Across all sectors, IT businesses, many of them contractors operating as sole traders or limited companies, are the most severely affected of the 1,000 business surveyed, all of which have less than 250 employees.

Overall, 32 per cent of IT SMEs said they had been faced with closure due to the impact of late payments. For SMEs as a whole, this figure is only 25 per cent. As small businesses normally have small amounts of capital available to run their operations at any given time, they are disproportionately affected by the effects of late payments.

Some experts have suggested that e-payments could help increase promptness in business transactions. The effectiveness of this method remains relatively unclear, as only 25 per cent of those surveyed said they were making use of the technology. Why the uptake of e-payments remains so low was not discussed.

While the average late payment debt is £40,850, half of this amount is generally overdue, reflecting the difficulties of persuading clients to pay for work completed.

It has been suggested that the burden is created by manipulative clients waiting until the very last day available to pay the invoice, or even falsely claiming that they do not have the necessary information to make a payment in a bid to buy more time.

During discussions about the creation of a Small Business Commissioner to tackle the problem, the government even described these practices as “supply chain bullying”, showing that the issue now has traction in the highest of political circles.

The biggest offenders when it came to late payments were large companies, with 22 per cent of the delayed invoice total. Another 11 per cent was owed by medium companies, and eight per cent by the public sector. The remaining third said there was no obvious main offender, but their difficulties remained.

Tungsten Corporation chief executive officer Richard Hurwitz said: “These figures are a telling reminder of the challenges faced by SMEs in this country.

“An unpaid invoice can mean the difference between a successful month of trading and a dangerous financial shortfall. In the worst case, it could lead to insolvency.”

He added: “The creation of the role of small business commissioner shows the government is taking the problem seriously, but it’s clear there’s work still to be done to ensure SMEs are paid in a timely fashion.”

Mr Hurwitz had his own ideas for a solution. “If companies adopt a modern approach and investigate alternative finance options, coupled with ongoing government support, we can make these business practices a thing of the past,” he said.

It is clear that there is no one solution to the issue, but growing awareness around the problems of late payment means that hopefully a coherent strategy to deal with it can be formulated.

By Victoria McDonnell

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