According to Barclays Local Business’ annual Late Payments report, there has been a 20 per cent rise in late payments, forcing UK small businesses to write off £4.8bn in debt. The figure is up £1.7bn on last year and has meant that small businesses have lost out on a staggering £5bn over the past 12 months. Furthermore, they are owed more than £10bn in outstanding payments on any given day due to suppliers or customers failing to pay on time.
Poor payment practices have long been a thorn in many a small business’ side but the report highlights just how widespread the problem is becoming. Nearly three million small businesses (around 60 per cent) have experienced problems with late payments, representing an additional 850,000 businesses compared to last year. While a rise in late payments is expected during an economic downturn, these figures are still worrying and inexcusable. Small businesses are trying their hardest to get by in the current recession but approximately a third of the organisations surveyed by Barclays (32 per cent) admitted that customers or suppliers failing to pay on time threatened their day-to-day survival. That is because payment is crucial to a company’s cash flow and if not received on time or promptly, it can have a significant effect on the functioning of that business.
While the government could do more to tackle late payments, it is clear this is an issue that is unfortunately here to stay. Therefore, small businesses that recognise this and prepare appropriately will be those that survive and thrive in this recession and the days to follow. They will be those that have good cash flow and credit management practices in place, including simple steps to ensure a business is protected from the possibility of late payment. These may involve running regular credit checks on new and existing customers or suppliers, setting out payment terms and penalties clearly, ensuring invoices are accurate and implementing an effective system to manage debtors and chase payments. More importantly, they will have robust processes in place to manage their finances and execute these steps.
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