"Huge numbers of businesses will continue to experience cash flow pressures at a time of wider economic uncertainty. "
Almost a third of SMEs (31%) have experienced late payments costing their business at least £10,000 in the last 12 months, according to research from Hitachi Capital.
Late payments are estimated to have cost UK SMEs at least £51.5 billion in the last 12 months, but Hitachi Capital says the true figure is likely to be much higher.
Over a quarter of SMEs (27%) have experienced a profit squeeze because of late payments, and 12% have had to defer staff pay.
Around 40% of respondents have been forced to use their own money to address cash flow gaps in their business. The vast majority of these respondents (80%) have invested personal savings to keep their business afloat or operational.
Nearly three quarters of SMEs (74%) have had a customer fail to pay during their agreed terms at least once during the last 12 months, and 34% of SMEs report customers using their position to delay or reduce payment.
With 21% of SMEs also turning down a contract because a customer was known to be a bad payer or offering unfair payment terms, the use of external funding options is an increasing necessity to offer a safety net when business is stalling.
The findings come amid a range of new Government measures – proposed by the previous Government but currently on hold – of tougher sanctions to address late payments, including greater powers for the Small Business Commissioner to enforce best practice and revisions to the Prompt Payment Code. Of those surveyed, over two-thirds of SMEs (68%) would support legislation making it illegal to miss a payment deadline, with over half of respondents (57%) spending nearly a day a week chasing outstanding invoices, suggesting that late payments are contributing to the productivity deficit within the UK economy.
Robert Gordon, CEO of Hitachi Capital UK, said: “An imbalance of power between clients and suppliers, often driven by larger players abusing their position, has led to a widespread late payment culture that is damaging UK SMEs. As our research has shown, if we let this go unchecked, huge numbers of businesses will continue to experience cash flow pressures at a time of wider economic uncertainty.
“This has ramifications not only for SMEs, but for entire supply chains and a fair, competitive and supportive business environment is critical for the country’s wider economic success. It’s imperative that we not only acknowledge this issue and crack down on late payments, but also take practical steps to ensure businesses are given the required support and penalties are put in place for the worst offenders.”
Andy Dodd, managing director of Hitachi Capital Invoice Finance, added: “Many SMEs struggle to maintain liquidity and this remains an underlying threat to their personal finances and ultimately the survival of their businesses.
“Fortunately, there are a number of solutions available to small businesses. Firstly Invoice Finance which provides an immediate advance, normally of up to 85% of the invoice value, to provide instantaneous cashflow injection. Secondly, using a good credit control provider, perhaps aligned to Invoice Finance – it’s an area that frequently neglected, but should be front-of-mind amongst SMEs.”