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£6.2 billion late payment debt leaves South East SMEs out of pocket

30 Mar 2017

Small and medium-sized enterprises (SMEs) across Kent, Surrey and Sussex are owed a staggering £6.2 billion in late payment debt, analysis by law firm DMH Stallard has found. The total across the UK is an eye-watering £26.3 billion.

Research by the payment services company Bacs revealed that 47% of SMEs have clients and customers who flout agreed payments terms leaving firms, on average, out of pocket to the tune of £32,185. When this is multiplied by Office for National Statistics figures on the numbers of SMEs across the South East, a picture of how the amount companies in each area are owed emerges.

The implications are far reaching, with the Bacs research finding 32% of SMEs saying that they were forced to delay paying their own suppliers and 12% saying they had trouble paying their own staff because of late payments.

The list below shows the breakdown of late payment debt for the South East:

Kent =   £1,896,983,900bn                           (58,940* SMEs)

Surrey = £2,032,160,900bn                          (63,140* SMEs)

East Sussex = £726,093,600m                      (22,560* SMEs)                

West Sussex =   £1,135,004,025bn               (35,265* SMEs)

Brighton = £423,876,450m                           (13,170* SMEs)

*Office for National Statistics 2016 figures

In a bid to tackle the problem the government has introduced new regulations that come into force on April 1.

Kelly Mills, Partner at law firm DMH Stallard and a specialist in commercial dispute resolution, said:

“Being paid promptly for many of these SMEs can be the difference between thriving and dying. 

“It’s tough enough to run a successful business without having to spend inordinate amounts of time also chasing customers for payment.

“The new rules brought in by the government are to be welcomed and will hopefully bring a positive change to the way SMEs are paid.”

From April 1 large companies and limited liability partnerships will have to publicly report twice a year on their payment practices, including the average time it takes them to pay invoices. 

The Department for Business, Energy and Industrial Strategy is also creating a new role of Small Business Commissioner.

Kelly added: “While many businesses recognise that the practice of late payments is ethically unsound, SMEs can also help combat the problem by using best practice in managing their payment systems.

“It won’t prevent every late payment or bad debt, but by establishing strong protocols for how a business administers its financial relationships, cash flow will improve and the resources needed to chase outstanding bills will be greatly reduced.”

Kelly recommends the following five steps for SMEs wanting to improve their payment systems.

Five steps to help avoid late payments from customers

  1. Credit check your customers

This applies to new and existing customers – do you know their current financial position? This can provide a good indicator of whether you want to do, or continue doing, business with them and on what terms. How much credit, if any, do you want to extend?

  1. Agree clear payment terms

Knowing what payment terms are in place is key to managing cash flow and debt. When is payment due? What sanctions are in place in the event of overdue payment?

  1. Invoice promptly

Seventy-one per cent of businesses who claim not to have issues with late payments attribute this to robust invoicing practices. The longer it takes to invoice, the longer it will take to get paid, so why wait? Is it possible to send the invoice by e-mail, for example, to avoid unnecessary delay?

  1. Make payments easier for customers

Consider offering on-line payments or direct debits, where appropriate. The easier it is to make payment, the more likely it is that payment will be made promptly.

  1. Monitor and chase debt

Keep a record of when payments are due. As soon as an invoice becomes overdue for payment, make contact with the customer – one in five businesses cite the reason most often given by customers for late payment is that the invoice has simply been forgotten, so a simple reminder may be enough to prompt payment. Furthermore, making contact with customers can also provide an early indication of issues which may be a barrier to payment.

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