ABFA study shows SME food producers waiting longer to receive payment
Smaller food and drink producers are waiting more than two weeks longer than their larger competitors to receive payment from their customers, new research by the Asset Based Finance Association has revealed.
Food producers with a turnover below £10m are waiting an average of 48 days to receive payment, whereas the largest businesses – those with turnover in excess of £500m – see their invoices to customers paid within 33 days.
The ABFA adds that it is the very smallest food and drink producers that experience the longest delays in the sector – businesses with a turnover below £1m are waiting an average of 56 days for payment, or an additional three weeks, compared to the bigger businesses.
The government hopes to address the growing problem through its recent Enterprise Bill. The bill will establish a small business commissioner with the remit of helping SMEs in disputes over issues with larger businesses; this will include referring SMEs with issues over payment delays to mediation.
Jeff Longhurst, chief executive of the ABFA, commented: “Payment delays are a deep-seated problem for SMEs in the food and drink sector and it is clear that, despite the best efforts of the government, they’re still suffering more than their larger rivals. With competition intensifying in the supermarket sector thanks to the expansion of the German discounters, perhaps that’s no surprise.
“These extra delays to receive payment hit SMEs particularly hard as they are often relying on this income to pay their own suppliers, and it can have repercussions down the supply chain. Introducing mediation is a start, but it won’t help SMEs with their immediate cashflow problems when payment on an invoice is late.
“Accessing funding through invoice finance is an increasingly popular method of mitigating the impacts of extended payment terms or late payment. In all, 80% of asset-based finance is invoice finance, in which businesses secure funding against their unpaid invoices, while the other 20% represents the fast-growing area of asset-based lending, in which businesses can raise money secured against a range of other assets they own, including inventory, property and machinery.
“It’s more important than ever that businesses in the food and drink sector fully understand the options available to them to free up the funds they require and minimise the impact of late payment. Our members provide an average of £19.3bn in asset-based finance to British and Irish businesses at any one time, up by more than £370m in a year. More than 42,000 small businesses in the UK and Ireland currently use asset-based finance.”