Trend of late payments grows further

Thursday 15 October 2015

According to new research from the Asset-Based Finance Association (ABFA), the impact of late payment on the UK’s small to medium-sized enterprises (SMEs) is continuing to grow.

It is believed that the country’s SMEs are now owed a total of £67.4 billion - up 36 per cent from £49.5 billion in 2011, and eight per cent higher than last year’s figure. On the whole, construction and manufacturing businesses are the worst affected.


In fact, late unpaid invoices currently account for £7 billion in the construction sector alone, amounting to 16 per cent of the industry’s annual turnover. The situation is similar for manufacturing businesses, who are owed £13.4 billion - 17 per cent of their yearly income.

The average length of time that it takes for an invoice to paid has now reached 72 days, which is 11 days longer than the figure for the height of the recent recession, when one might have expected more businesses to have problems paying bills. Again, construction businesses are generally the hardest hit, and have to wait an average of 107 days for payment.

Discussing the findings, Jeff Longhurst, chief executive of the ABFA, said: “The scale of unpaid invoices to Britain’s small businesses has become enormous, but there is no reason for it to become a barrier to investment and growth.

“Businesses need to recognise that their unpaid invoices are an asset. In many cases, they are the most valuable asset a business has, and they can be the key to unlocking critical and affordable funding.

“Invoice finance is playing a bigger role than ever in funding British and Irish businesses’ growth, and it is now an established part of the funding mix for a huge number of small businesses. But it can also help many more businesses.”

The practice of invoice financing, where businesses can sell on their debts, may secure them a lower overall amount of income, but many find the sacrifice to be worth it if it means that they can have immediate access to the money needed to keep their business running.

Late payment can have a disproportionate impact on small businesses, as they are more likely to suffer serious cash flow issues when their income is withheld.

The government has recently promised to tackle the issue, and announced plans to create a dedicated small business commissioner role. Whoever is appointed to this position is likely to put working out practical ideas for minimising the impact of late payments on SMEs towards the top of their agenda.

Concerns have also been raised about a phenomenon known as supply chain bullying, where larger companies used their increased business clout and resources to put off paying their bills to SMEs for as long as possible. While clearly unethical, the practice is currently in something of a legal grey area, meaning that it is another area likely to be of concern to the incoming small business commissioner.

While there has yet to be any concrete action regarding the effects of late payment, it appears that the government is taking it increasingly serious, and that some changes are likely in the relatively near future.

By Victoria McDonnell

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