SMEs hit disproportionately by payment delays- gap with big businesses widens by 6%
Small businesses are now waiting over six weeks longer than big businesses for invoices to be paid, placing huge pressure on their cashflow and capacity to expand order books, says the Asset Based Finance Association (ABFA), the body representing the asset-based finance industry in the UK and the Republic of Ireland.
The ABFA says that small businesses (with a turnover < £1m), now wait 33 days longer than large companies (with a turnover >£500m) for payment, up from 31 days last year, representing a rise of 6%.
The ABFA explains that the largest companies now experience an average payment delay of just 38 days- which is one day quicker than last year. The smallest companies meanwhile, now wait an average of 71 days, one day slower than last year.
The ABFA says that overall, the average time a UK business has to wait for payment currently sits at 61 days.
Jeff Longhurst, chief executive of the ABFA, said:
“Whilst big businesses are enjoying more prompt payment, SMEs are suffering more than ever- the delays which became common during the credit crunch have quite clearly persisted, despite the wider economic recovery.
“The impact of delayed payment on businesses’ cashflow and capacity to expand order books presents a serious concern- particularly for smaller companies. Even when a business is thriving, just a few unpaid invoices can end up a real threat to survival.
“As well as paying invoices late, many companies are imposing extended payment terms on their suppliers from the outset, which can end up having a similar impact.”
Brexit could lead to further payment delays
The ABFA adds that upheaval generated by the recent Brexit vote could adversely impact the situation, and lead to further increases to payment delays. With businesses facing uncertainty and questions about their future, ensuring suppliers are paid in a timely manner is unlikely to be a top priority.
Jeff said:
“There are concerns that big business will start hoarding cash as a response to the Brexit vote. One of the ways they normally do this is by delaying payments to suppliers.”
The ABFA says that there have been several attempts to address the issue of late payment over recent years, including the introduction of the Prompt Payment Code in 2013, which sets out standards for payment practice, and the government’s appointment of a new Small Business Commissioner, with a remit to address payment delays to SMEs.
Jeff adds:
“Despite a number of well-meaning initiatives, late payment and extended payment terms remain an acute issue for many businesses.
“Unfortunately, the need to protect client relationships renders the issue a complex one, with no quick-fix.
“The desire for repeat business means that many businesses are reluctant to charge clients interest, report ill-practice or to push back on suppliers imposing extended payment terms. This is particularly true for SMEs- where the loss of one substantial account could be devastating.
“There are, however, some steps business can take to protect cashflow. Asset based or Invoice financing, for instance, enables firms to borrow against the value of their invoices before payment is received, or assets, freeing up funds to mitigate late payment. Careful financial planning can be key.”
