The UK’s late payment culture is costing small and medium-sized enterprises (SMEs) billions of pounds each year, new research has revealed.
The study, published by payment provider Bacs, found that small businesses face a bill of up to £6.7 billion in 2018 – just to collect the money they’re already owed.
This represents a significant rise compared to the previous year, when debt recovery services cost SMEs just £2.6 billion.
According to Bacs, the cost of recovering overdue money now stands at an average of £9,000 per small business. Likewise, more than a third of SMEs are waiting, on average, two months beyond agreed terms to be paid – double the number who said the same in 2017.
This is having a significant knock-on effect in terms of cash flow and business continuity, with over a quarter of SME business owners forced to pay their own suppliers late, with a further 28 per cent cutting their own salaries in order to keep cash inside the business.
Overall, the data shows a six per cent increase in the number of SMEs experiencing late payments, rising from 37 per cent in 2017 to 43 per cent in 2018. The average amount each company is owed currently stands at £17,000.
Commenting on the study, Ian Cass, managing director of the Forum of Private Business, which campaigns on behalf of small to medium size businesses, said: “With billions of pounds tied up in late payments, there is a knock-on effect through the whole UK economy.
“Small businesses are working to tighter margins and with late payment affecting cash-flow it can mean that these businesses can’t invest, can’t grow and in some cases it’s so serious that it can put them out of business entirely.”