Quarter of UK firms left waiting for payment forced to settle bills late

Gurjit Degun
28 July 2014

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28 July 2014 | Gurjit Degun

A quarter of UK businesses are being forced to pay their suppliers late because they themselves are still waiting for payment.

Research from Bacs Payment Schemes (Bacs) has revealed UK businesses are burdened with £46.1 billion debt due to late payment.

Bacs, the company behind Direct Debit and Bacs Direct Credit, found SMEs are owed £39.4 billion, whereas large corporate firms are waiting on £6.7 billion at any one time.

Of the 350 businesses surveyed, 60 per cent are now experiencing late payments, with the SME waiting for an average of £38,186. “One in four SMEs admit that if the amount they are owed grew to £50,000 it would be enough to send them into bankruptcy,” said Bacs. The average large corporation is owed almost £1 million.

UK businesses are also being forced to bear additional costs of £9.16 billion a year, with around a third saying they’re spending around £500 a month as a consequence of money owed to them. “This figure can be as high as £10,000 a month as a result of the various costs associated with bad debts, including the likes of overdraft fees and admin costs - with one in four companies spending over 10 hours a week chasing late payments,” added Bacs.

The research found the manufacturing sector is most likely to be impacted by overdue payments (72 per cent), followed by the services sector (63 per cent) and the transport, retail and distribution sector (48 per cent).

Mike Hutchinson, director of scheme support and development at Bacs, said: “Despite the positive signs emerging about the financial state of the nation as a whole and the fact that we are thankfully moving out of recession, SMEs, which everyone agrees are the drivers of a successful economy, are being held back because of the increasing pressures of late payments.”

National policy chairman at the Federation of Small Businesses Mike Cherry added: “The FSB wants the government to tackle the issue head-on in its Small Business Bill. Small firms simply can’t be expected to lend interest free to larger companies, which late payments and extended payment terms force them to do.

“In addition, the Prompt Payment Code needs to have more power and authority to help the smaller firms. For example, ensuring the largest businesses spell out their payment terms. The EU Late Payment Directive is very clear that if payment terms exceed 60 days, they must explain why. It’s time for big companies to take their responsibility to pay on time seriously.”

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