In a survey of more than 500 managers at companies ranging from two to 250 employees, Dun & Bradstreet has found it is putting the future at risk for 58 per cent of SMEs.

Edward Thorne, UKI managing director at Dun & Bradstreet, told Real Business: “Although initiatives like the Prompt Payment Code are helping to highlight the issue, late payments pose a very real risk and can have a significant impact on the financial success of smaller businesses.”

Dun & Bradstreet’s research revealed an average late payments amount of £63,881 for each SME, with 11 per cent owed between £100,000 and £250,000. This withholding of payments brings about cash flow difficulties for 35 per cent, delayed payments to other suppliers for 29 per cent and reduced profit performance for 24 per cent.

Robert Blackburn, from Kingston University’s Small Business Research Centre, added: “This [late payments issue] seems to worsen during difficult economic times. Although many SMEs are able to tighten their belts during an economic slowdown, late payment adds further pressure on cash flow.”

Key late payments statistics

• 51 per cent say late payments are more of a problem than they were three years ago
• 58 per cent say late payments are putting the business at risk of failure
• 51 per cent of SME owners use personal savings to cover the shortfall from late payments
• 36 per cent of SMEs don’t credit check any customers

Thorne recommended using data to assess the financial and payment risk of customers prior to agreeing on credit terms. Having a good understating of a customers’ payment behaviour based on past performance can help businesses make decisions, forecast cash flow and pre-empt the behaviour of recurrent slow players, he believes. However, 36 per cent of SMEs still don’t credit check any customers.

“When cash flow is tight, there are also now more alternative sources of funding available to SMEs to help sustain them through uncertain periods,” Thorne said. “Finance can now be secured based on a single invoice and there are a variety of options on offer to help businesses cover the holes in the balance sheet that late payments can cause.”

Manufacturing was found to be the sector most exposed to late payments, with SMEs there owed an average of £83,000. This was closely followed by smaller businesses in the retail space, where an average of £76,000 is outstanding.