SMEs threaten to walk away from late payers

25 January 2013

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26 January 2013 | Anna Reynolds

UK SMEs are currently owed more than £36 billion in late payments and are standing up to ‘repeat offenders’, according to research by Barclays.

The research, which polled 1,100 senior decisionmakers at UK small businesses, revealed that in the past year, more than a fifth (22 per cent) have refused to do future business with customers who did not pay them on time.

Half of respondents claimed their worst ‘repeat offender’ made late payments three times a year or more, and almost a third of SMEs have threatened, or taken, legal action or requested payment upfront.

The impact of late payments is significant with almost a third (30 per cent) of respondents having to use personal money or assets to boost their cash flow. Further, 20 per cent have suffered stress as a result, and in 11 per cent of cases, late payments have almost caused a business to fail.

The research also found that 66 per cent of respondents whose businesses have experienced late payment have had to wait, on average, more than a month past the agreed payment terms for a bill to be paid, while one in 10 said they have had to wait more than six months.

Scott Murgatroyd, owner of wood coating business CFG Finishes told SM: “Late payments mean you can’t move forward, you can’t progress – we want to do more marketing but it’s difficult to pay for this when you have to cover other areas of the business due to bad debt.

“We have sent solicitors’ letters out and I would definitely consider turning down a potential customer in the future if I knew they weren’t going to pay, otherwise you’re working for nothing.”

Murgatroyd said it was essential for his business to adapt: “To assist with cash flow we have set up an e-commerce website, which supplies paint finishes and sundries such as brushes and rollers. This helps cash flow as people have to pay before leaving the site. It demonstrates how small businesses like ours have to diversify to stay alive.”

Sue Hayes, managing director of Barclays Business Banking, said in a statement: “Faced with a continually challenging business environment, small businesses clearly have no other option than to take action against customers who repeatedly pay late. While it goes against all natural business instincts to turn customers away, it is entirely understandable when weighed up against the overall impact of the late payment on the future of the business.”

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