Debt Recovery: SMEs owed £40bn in late payments

According to recent research, the future of SMEs in the UK could be under threat due to the amount of late payments owed to them. This is of concern given that SMEs play a central role in the UK and European economy.

According to data published by BACS Payment Schemes (‘BACS’), the amount owed to SMEs in late payments across the UK is now estimated to be £46.1bn. The amount has grown from £30bn last year. Larger companies have a much small amount of debt owed to them of £6.7bn. An SME is a business employing less than 250 people, with an annual turnover of less than 50m Euros (approximately £38.8m), and/or an annual balance sheet of less than 43m Euros (approximately £33.4m).

According to BACS, more than half of all SMEs are experiencing late payments, with the average company owed just over £38,000 in overdue payments. For many SMEs, debts of this size can make the effective management of a business’ cash flow very difficult. Responses from SMEs suggest that if the average debt rises to £50,000, it could result in one in four SMEs becoming insolvent.

One way in which the government is trying to help SMEs, is to introduce legislation (through the Small Business, Enterprise and Employment Bill) to make it compulsory for large companies to include within their annual report how long they take to pay suppliers. It is hoped that this will encourage large organisations to pay promptly.

A government initiative (managed by the Institute of Credit Management) also exists, called the Prompt Payment Code. It is voluntary, and entitles successful applicant SMEs to use the ‘prompt payment’ logo. Applicants must provide two referees, who will be contacted every 6 months to confirm on-going prompt payment.

Research by BACS suggests that a culture exists within the UK economy whereby larger companies appear to be exploiting their position and paying their (smaller) suppliers late. Overdue payments not only starve businesses of money, they often result in costs being incurred due to the use of overdraft facilities, and cost money to pursue. When companies are paid late, they often end up paying suppliers late too, which adds to the vicious circle of late payments.

Holmes & Hills Solicitors in Essex and Suffolk offers fixed-fee debt recovery services which can help your business to recover its debts quickly. The cost of having Holmes & Hills Solicitors recover your debts starts at just £50 + VAT.

Holmes & Hills’ specialist team of debt recovery solicitors assist in the prompt collection of debts of all sizes. Your debt recovery solicitor will outline your available options and advise you on the most appropriate course of action to take. This will take into account the level of debt you are seeking to recover, the period of time the debt has been outstanding and the condition of the debtor’s finances.