Late payment is strangling the cash flow of small businesses

We had a good day for customer cheques and BACS payment today. However, a new report from Barclays suggests that we are lucky. Small businesses are being submerged under the increasing burden amounts owed by trade debtors.

It is always interesting to read the press releases from the major banks and accounting firms. They often produce some useful research for business teachers.

Take this example from last Friday - issued by Barclays.

According to Barclay’s research, small and medium sized businesses (“SMEs”) in the UK will be owed approximately £8.3 billion on February 29 due to suppliers or customers failing to pay on time.

Nearly six in ten (59 per cent) SMEs experience problems with late payment, with a third of this number (33 per cent) admitting that customers or suppliers failing to pay on time threatened the day-to-day survival of their business.

The report goes on to explain that:

On average, at any given point during the year, SMEs are owed more than £2,000 from suppliers or customers who have failed to pay during the standard 30 day invoicing period. Entrepreneurs typically have to wait nearly a fortnight (12.3 days) after the invoice due date before they get paid.

This report certainly struck home with me. I remember looking at our sales statistics last week and was pleasantly surprised to see a high growth in revenues (we’re almost 65% up for the half year to-date). However, the cash balance wasn’t up so much. Ok, so our operating costs are higher (payroll, marketing, rent), but this didn’t explain it all. I discovered the answer in trade debtors (amounts owed by our customers) which had risen significantly. We had delivered the sales growth, but it had not yet translated into cash!

So we’ve refocused our efforts on chasing some late payers over the next couple of weeks, joining the many thousands of SMEs in the UK who are trying to tackle the problem of late payment.