Research by Bacs, the organisation behind Direct Debit, has revealed that British SMEs are having to wait an average of 41 days longer than their original agreed payment terms, before invoices are paid.

This figure is well up on the 45% recorded in June 2010 – which suggests life is getting increasingly tough for those at the end of the chain. 
Michael Chambers, managing director of Bacs, said: “Small businesses rely on receiving payments on time so that they can maintain cash flow and ensure the business can run on a day-to-day basis.  Our research highlights the continued widespread nature and real impact of the late payment problem, which was affecting 961,000 SMEs in December last year - that’s a massive 57% of all British SMEs.” 

Bacs’ research shows that large companies are the main late payments culprits, with 37% of SMEs citing them as the worst offenders.  However 17% of respondents pointed the finger at sole traders, with the same number (17%) blaming fellow SMEs.  6% of SMEs cited not-for-profit organisations and government as the worst payers, suggesting that the pledge made in the 2010 Budget, that government departments will pay 80% of invoices within five days rather than the usual 30, will be a challenge to meet.

Cash flow remains the most common reason for overdue payments, with 39% of respondents saying it was the main reason given by customers for paying late (an increase of 9% from June 2009).  7% of respondents said their customers blamed the economic downturn for payments being late (up 5% on June 2009) and a further 7% said that being paid late had a knock on affect on their ability to make their own payments.  7% of respondents were told by customers that they had simply forgotten about the invoice, while 4% were given the reason that ‘the cheque is in the post’, an excuse soon to be obsolete with the UK Payments Council’s plans to phase out cheques by 2018.

Phil McCabe, spokesperson for the Forum of Private Business (FPB), said: “Late payment is a huge problem for small businesses and it’s highly disappointing to hear that small firms are having to wait even longer to be paid.

“Late payment is frequently cited as the number one problem facing our members, eclipsing even taxation and regulation. With its damaging impact on a company’s cashflow, it can cause a perfectly viable and successful firm to fold.”