A significant proportion of small- and medium-sized businesses have experienced a rise in late payments for their services, according to a new survey from the Forum of Private Business (FPB). Almost a quarter (23%) of the national small-business advocacy group’s members reported an increase in late payment over the past year, while only 3% reported a decrease.
SMEs are also waiting longer to receive their payments. The survey showed that 29% have experienced an increase in the average number of days beyond the deadline that a late payment is made. By contrast, just 8% of bosses say the average number of days before they receive payment has decreased.
The International Monetary Fund is the latest respected body to praise UK economic growth, saying it will be the fastest-growing economy in the G7 this year. The IMF predicts the UK will grow 2.9% in 2014, up from a January estimate of 2.4%, and will see growth of 2.5% in 2015. But FPB chief executive Phil Orford says that difficulties in cash liquidity are continuing to hold young firms back.
Orford said: “Improving cash flow is the likely cause for late-payment issues remaining static, despite lengthening payment terms. However, upwards of £30 billion remains tied up in late payments, costing a typical small business 130 hours a year to chase – meaning that a third are forced to seek external finance to cover the gaps in cash.”
Small businesses are unsurprisingly keen for more measures to tackle the issue, with 39% of them asking for rewards for prompt payment and 37% opting to pay VAT on money that has entered their accounts, rather than when an invoice is submitted. Additionally, more than a third (36%) of companies that responded want notorious late payers blacklisted from obtaining government contracts.
At present, the government is mulling over responses to a recent late-payment discussion paper, which revealed ample ideas for tackling the issue in a more robust manner – such as the reintroduction of compulsory reporting of company payment terms and practices, and annual checks for Prompt Payment Code signatories.
Orford explained: “It is essential that government uses the recommendations to introduce effective measures, and accepts that it not only has a responsibility to play in this area, but also that its increased action can act as an important catalyst for better payment practices.”
Image of Phil Orford courtesy of the FPB image library