
According to leading trade bodies, the culture of late payment is worsening.
Analysis of Government Companies House records by the firm reveals 4,192 micro- businesses, defined as having less than ten staff, on average each fell into ?68,000 of trade debt in the last financial year. These firms also typically waited 63-days for payment ? over double the standard payment terms. Research by the Institute of Directors (IoD) revealed two-thirds of SMEs suffer from the problem, and the Federation for Small Businesses (FSB) has stated one in five small firms are financially bullied by bigger clients. And in 2014, Bacs, the company responsible for direct debits, showed that companies employing less than 250 people were owed late payment debt of ?39.4bn, whereas those employing more than that are only owed ?6.7bn. Astonishingly, 60 per cent of SMEs are experiencing late payments and the average owed per business is ?38,186. One in four admit that if that figure grew to ?50,000 it would be enough to send them into bankruptcy. This is all despite government attempts to address the crisis, such as through the Prompt Payment Code, which seeks to encourage large businesses to set out clearly defined payment terms. However, due to the voluntary nature of the code, only 1,700 UK?s businesses have signed up to its principles. The EU Directive on Late Payment, calling for a maximum payment timeframe of 60 days, has also been largely ineffective. This is due to a loophole that allows for longer payment terms if agreed with the supplier. Last year, this led to food giant Mars doubling its payment terms from 60 to 100 days, with suppliers given little choice but to accept or risk loss of business. The FSB suggests that five per cent of small businesses have also been asked to make some form of payment to avoid being ejected from preferred lists of suppliers. The ?Pay and Stay? policy of Premier Foods, which involved requesting suppliers pay up to ?5,000, was recently widely criticised. Read more about late payment:- FPB’s seven tips for tackling late payments
- Late payments are a headache for SMEs
- How to solve the problem
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