Company bosses take pay cuts to mitigate impact of late payment

25 February 2015

A fifth of directors in companies that are paid late have taken a salary cut to keep cash inside their businesses, a new study says.

Research from Bacs Payment Schemes (Bacs) also shows that one in 10 are experiencing problems in paying staff on time, factoring invoices and difficulties paying regular bills.

More than three-quarters of UK businesses surveyed get contracts paid at least a month late, and this is having a knock-on effect, the study says.

“Being paid late or having to deal with longer payment times can severely hamper any business, large or small,” said Phil Orford, chief executive of the Forum of Private Business. “Alarmingly, this culture of late payment has a ripple effect down the whole supply chain with many small firms admitting to paying their suppliers late due to business liquidity issues created by outstanding payments.”

According to Bacs, SMEs are owed £32.4 billion. This is down from £39.4 billion in January 2014. Larger businesses are owed around £9.1 billion, up from £6.7 billion.

In total, the amount owed in late payments is £41.5 billion, down from £46.1 billion in January 2014.

But while this overall figure has fallen, 59 per cent of companies surveyed said they are impacted negatively by late payments, a similar level to last year.

Late payments cause SMEs extra costs of around £8.2 billion a year, mostly made up of administration time spent chasing the payments, Bacs says.

The average monthly cost of late payments for SMEs is just over £30,000, the research estimates, with a quarter of respondents saying that £20,000 is enough to jeopardise their business.

While almost 40 per cent of businesses are aware of government measures to help companies minimise their exposure to late payments, 72 per cent were unconvinced that they would speed up payments to them.

Mike Hutchinson from Bacs, said: “The ongoing issue of late payments means that businesses across the UK are facing some tough choices about how to use the cash available to them. They are concentrating on keeping their own businesses afloat rather than paying suppliers, and so the vicious circle continues.”

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