UK companies face a late payment burden of £46.1 billion

New research from Bacs Payment Schemes shows that the late payment debt burden shouldered by UK businesses has reached £46.1 billion.

Bacs looked at SMEs and large corporates throughout the UK. The research shows quite clearly that SMEs are being forced to carry the larger debt burden of £39.4 billion, while corporates are owed £6.7 billion at any one time.

60 percent of UK SMEs are now experiencing late payments, with the average SME waiting for £38,186 in overdue payments. 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. In contrast, the average corporate is owed almost a million pounds.

On top of that, UK businesses are being forced to bear additional costs of £9.16 billion a year due to late payments with around a third (30 percent) saying they’re spending around £500 a month as a consequence of money owed to them. And, according to the research, 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.

The knock-on effect of late payments means that a quarter (25 percent) of companies are being forced to pay their own suppliers late, with one in five (21 percent) saying that late payments are forcing them to rely on bank overdrafts.

In terms of the extended period that companies are kept waiting for payment, more than three quarters (76 percent) of companies surveyed said settlement was being delayed a minimum of a month beyond their agreed payment terms.

Businesses in Scotland and Northern Ireland experience the highest levels of late payments with 67 percent and 66 percent respectively claiming to have been left waiting for invoices to be paid. In England and Wales, the figures stand at 62 percent and 59 percent.

In terms of business sectors, the Bacs research reveals that companies in the manufacturing sector (72 percent) are most likely to be impacted by overdue payments, followed by businesses operating in the services sector (63 percent) and the transport, retail and distribution sector (48 percent).

There is some good news, however; 71 percent of those companies which claim not to have late payments say that robust invoicing practices were likely to reduce overdue payments, while just over half (51 percent) say that receiving payments by Bacs Direct Credit also reduce payment delays.

Mike Hutchinson, from Bacs, says: “Despite the positive signs emerging about the financial state of the nation as a whole, SMEs, which everyone agrees are the drivers of a successful economy, are being held back because of the increasing pressures of late payments.”

FSB National Policy Chairman Mike Cherry said: “These latest figures are a further reminder of the major headache caused by late payments.  Not paying on time and lengthy terms can have a seriously detrimental impact on small firms. 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.