Late payments to SMEs leap 40 per cent to 26 billion

British small and medium sized enterprises (SMEs) are now owed a massive 25.9 billion after overdue payments rocketed by almost 40 per cent over the last year, up sharply from 18.6 billion. Thatís the latest finding from ongoing research into the problem conducted by Bacs Payment Schemes Limited (Bacs), the organisation behind Direct Debit and Bacs Direct Credit.

And while the national average of outstanding payments was frighteningly high in 2008 - 38,000, up 8,000 on 2007 figures - itís the Midlands which has been hardest hit with the average SME claiming overdue invoices amounting to a staggering 69,000.

The number of SMEs finding themselves owed money across Great Britain also increased to almost six out of every ten, up from 51 per cent in 2007 to 57 per cent in 2008. And itís manufacturing which sees the highest incidence of late payments, with almost two thirds (65%) of SMEs in this sector experiencing a delay in invoices being paid, compared with 53% of those in the service industry.

Bacs research into late payments also indicates the Governmentís Prompt Payment Code has some in-roads to make if it is going to encourage swift settlement of invoices. This latest business omnibus shows that GB SMEs are waiting an average of 41.5 days beyond agreed payment terms for invoices to be settled.

The most common cause of late payment is cash flow problems, with almost a quarter (24%) saying this is the excuse theyíre given. There are differences across industries, though - SMEs in the service sector cited the economic downturn as the reason they were given most often (16%), where as 35% of manufacturing and 30% of distribution SMEs were told cash flow was the issue.

Michael Chambers, managing director of Bacs, said: ìThis research demonstrates the pain being felt by many small and medium sized British businesses during these challenging economic times, and late payments could well be a major factor in the success or failure of these companies in the year ahead - SMEs are currently disappearing at a rate of 86 every day(1).

ìAction must be taken to address this crushing payment issue; but businesses also have to take responsibility for helping themselves where they can. For instance, while the Government has brought in a system of paying public sector invoices within ten days(2), surprisingly, three quarters ( 66%) of British SMEs havenít replicated that and still offer lengthier payment terms. Encouraging payment straight into bank accounts by Bacs Direct Credit could also help to shorten delays and avoid ëcheque in the postí excuses.î

Adding his thoughts, Phil McCabe, spokesman for the Forum of Private Business (FPB): Late payment and bad debt are the scourge of business owners. Often, they are major factors behind businesses being forced to close. The amount of money owed to small firms has soared over the past year as big businesses seek to create credit lines for themselves by squeezing their suppliers. In addition, despite the Government's pledge to pay its suppliers within 10 days, public organisations continue to be among the worst culprits.

The problem has intensified as a direct result of the credit crunch and economic downturn, as credit from suppliers has increasingly dried up. With the knowledge that prompt payment can mean the difference between trading profitably and trading at all, many small businesses are now looking to the year ahead with considerable trepidation.

For more information about late payments and how to tackle them head on, please go to www.paymedirect.co.uk where Bacs has developed a series of hints and tips for encouraging prompt payment.

Additional information:

What GB SMEs are planning for 2009:

More than three quarters of SMEs (78%) said they were looking to make their business more efficient in 2009.
Almost a third (32%) said they are planning to automate more of their essential business payments to save time on admin, for example settling invoices by Bacs Direct Credit instead of less reliable forms of payment like cheque.
50% of SME business owners questioned said they were going to keep more on top of debtors.

Over a quarter (28%) said they were planning to spend less time on email and more time talking to customers
But only one in five (20%) said they were planning to credit check all new customers.

Bacs has developed a series of hints and tips for SMEs looking to alter everyday working practices in 2009 and encourage quicker settlement of invoices.