Research by the Royal Bank of Scotland & Natwest has been widely reported today that 71% of SMEs had to cope with late payments in the last year, totalling over £60bn in unpaid bills (of which c. £15bn was overdue by more than 120 days). In parallel, the FSB stated that nearly 4000 businesses closed in 2008 due to invoices not getting paid on time.
Peter Ibbetson (Head of Small Business Banking at RBS) commented in the BBC website article “Bad debts and late payment of invoices are endemic problems for UK businesses. What’s concerning is that so few are making use of services from their bank to help alleviate the problem.”. He recognised that a key problem for small businesses is that they simply do not have the resources to focus on debt collection.
However Stephen Alambritis of the FSB countered in the same article that the banks are helping the problem at the moment: “It’s a huge problem for small businesses. When a small firm is paid late, it’s forced to go to the bank and with the banks being a bit tetchy at the moment, it’s a difficult position. Banks are not loaning and giving overdrafts which means small firms feel like banks themselves. Large firms are improving their cash flow on the back of smaller suppliers.”
In earlier research in February 2010, the FSB had also pointed the finger at the public sector for being the worst offenders, with one in three payments being made late. In the FSB/ICM research, businesses were asked whether they received payment from different types of organisations early, late or on time. Broken down by sector, whilst the figures for ‘late payment’ for the Private Sector were 34% and the Education Sector 22%, the Public Sector made up the rest (listed in ascending order: Police/fire 18%; Devolved Government 23%; Olympics 2012 25%; Local authorities 25%; NHS 29%; Government agencies 30%; EU institutions 30% and UK Central Government 31%).
This reluctance to pay on time caused 41% of small businesses to resort to using personal savings; 43% being reliant on overdrafts and 21% using a personal credit card to stay afloat. The feedback implied that this self-reliance was forced on them as they met with more refusal than support from the banks.
In their rbs_liquidity_magazine_issue5 the RBS offers a number of ways for businesses to look after their cash flow and keep their liquidity safe. As business owners we all know that cash-flow is king, and as we all work through the recovered from the recession, there is still a lot to do to sort out payment processes to smaller businesses. At PPG Ltd, we always recommend to our clients that they pay on time (or even early!) to encourage a good relationship with suppliers that can provide a life-saver is tough times. When was the last time you reviewed your payment processes to your suppliers? If you would like an objective view on how you can get yourself into a more secure cash-flow position, contact us for a free of charge review.