Small businesses waiting on £35bn in late payment

Unpaid bills to small businesses are now at the highest level (£35.3 billion) in almost five years, according to Bacs, with combined debts up by almost £2 billion compared to the first half of last year.

Bacs, which runs Direct Debit, found that the average amount owed to small businesses stood at £45,000 at the end of 2011, up from £39,000 earlier in the year. The only good news in the report was the proportion of businesses experiencing late payment has fallen down to 785,000 from 861,000 however because of the increase in money owed their combined debt is now bigger than ever.

Additionally the average company is waiting 29.5 days longer than agreed payment terms to have their invoices settled, and that figure is also up, rising from 28 days reported in the first half of 2011.

With large businesses insisting on payment terms of as much as 120 days, many suppliers could be waiting up to five months to be paid for work.

Big businesses worst offenders

The facts show that big businesses are still, in the main, those least likely to pay on time as more small businesses (41 percent) say they are the 'worst offenders' compared to private companies, individuals, other small businesses and government departments.

Mike Hutchinson from Bacs says the increasing value of late payments and the extended terms that many SMEs are now experiencing, highlights the important role that automated payments can play in maintaining a smooth cash flow.

"Our research highlights the challenges faced by many thousands of SMEs in chasing payments from customers and maintaining a healthy cash flow which is the life blood of any successful business," said Hutchinson.

"We would always recommend that anybody running a business ensures that as many regular payments as possible are automated in order to maintain financial control. This will reduce the stress and financial cost of chasing payments for business owners.

"Ultimately it is an issue for businesses of all sizes to address as prompt payment is not only good for the individual businesses involved in any given transaction, but throughout the whole supply chain."

Philip King, chief executive of the Institute of Credit Management, says: "Although disappointing it is no surprise that the volume and value of late payments is rising and shows that the Government (through the department of Business, Innovation and Skills - BIS) is right to be prioritising 'late payment' as a key focus of resource.