Annual research by Bacs Payment Schemes, part of payments authority Pay.UK, found that the country’s SMEs could spend up to £6.7bn this year in order to get back money owed by customers, up from £2.6bn in 2017.
Described by the Financial Times as a “late payment crisis”, the amount of money owed to 5.7 million small and medium-sized businesses currently amounts to £13bn, a fall of £1bn since last year, though the cost of recovery has grown significantly.
The collective bill facing SMEs amounts to around £9,000 per business. Late payments cause around 50,000 company failures each year with an annual economic cost of £2.4bn, according to the Federation of Small Businesses, which has previously called for the government to do more on the issue.
Ian Carrott, chief executive at credit specialist ICSM, warned that smaller businesses are the primary victim when late payment culture is allowed to persist.
He said: “Many of the problems stem from very large companies demanding extended payment terms from smaller suppliers. Not only does this keep money in the accounts of bigger companies at the expense of smaller ones, many of whom are paying bank charges to maintain that debt, it also enables businesses to keep racking up more and more credit when they have no means to pay.
“So many businesses are under so much financial pressure that thousands more will probably be driven to the wall by late payments before a proper platform is in place to sort it out. We’ve been saying for years that we need to adopt the way late payments are handled in Germany to make sure everyone in the supply chain gets paid promptly.
“The only losers will be dodgy businesses and the banks.”
The government recently announced new measures to tackle late payments, with small business minister Kelly Tolhurst opening a call for evidence for businesses to feed back the best ways company boards can enact responsible payment practices in supply chains.
In the meantime, printers are broadly taking matters into their own hands. Leicester-based Printvision was burnt by late payments last year and has stepped up its efforts in 2018 to ward off their impact.
Managing director Ash Patel said: “We have been very aggressive this year with collecting money on time. We supply trade companies, who are in turn supplying the end-user. This can include large, blue-chip clients who take 60-90 days to pay our clients.
“If you leave it too long, you simply will not get paid. We have found that you need to be phoning whenever money is due – customers do not like it, but it doesn’t change the fact that we need that money on time. Another problem has been a couple of recent pre-pack sales where we have lost money as companies go under.
“The biggest debt we ever had was about £7,500 around 10 years ago and we struggled through that as we lost money on man hours and labour costs. A massive debt would affect the company as a whole and possibly jeopardise our business.”
According to the Bacs study, the number of SMEs struggling with late payments grew from 37% in 2017 to 43% this year, with the average amount owed being £17,000.
However, it has not been an issue for Nottingham-based Fast Graphics, which has learned to become self-sufficient in its pursuit of late bills.
Financial director Paula Bates said: “It is odd that we do not have problems with late payments because we hear about it from so many others in the industry. We have found it is the quiet ones that miss out – you have to keep shouting.
“We have two or three customers that we keep a close eye on because we know they will not pay if we do not ask. Many small companies do not understand the impact of missing a payment until it happens to them, so we have learned to be self-sufficient.”
As printers forge ahead with their own means, the BPIF continues to work with authorities to transform attitudes and legislation.
Chief executive Charles Jarrold and head of legal Nicola Langley said in a joint statement: “Printers as with all SMEs can have their cashflow seriously affected by late payment – this can have a knock-on effect, making it hard for them to meet their own payment obligations and possibly incurring interest charges.
“The BPIF has been lobbying government on this issue and we also offer practical support by encouraging good credit control processes and providing members with guidance and template documents.
“We have just responded to the call for evidence and have asked that there are more detailed reporting requirements, and that there is legislation to enforce much shorter payment terms. Self-regulation has not been effective.”
