76% of businesses in the UK are having to wait at least one month beyond their agreed contract terms to get paid by customers and clients according to the most recent report by the Bacs Payment Schemes Limited (Bacs), leading to SME’s being owed a total of £32.4 billion in late payment from debtors.
A staggering 59% of businesses surveyed by Bacs reported being negatively impacted by late payment of debts. This is unsurprising with Bacs estimating that the average company incurs £677 a month in costs arising from debts owed to them, much of this cost relating to admin and time spent chasing the payment and attempting to recover the debt.
The consequences of late payment by clients and customers on SMEs is significant, with Bacs reporting that approximately 20% of company directors have taken a salary cut to keep more cash is in the business and help cash flow. 26% of businesses report having to use overdraft facilities to support their cash flow situation.
The total amount owed in late payments is £41.5 billion, with small enterprises being owed the largest chunk of £32.4 billion and larger corporate businesses being owed £9.1 billion (up from £6.7 billion in January 2014).
According to the report published by Bacs, the average SME is owed unrecovered debts of £31,901. To put this figure into perspective, SMEs surveyed report that £50,000 is the maximum amount that they could manage before becoming insolvent. For some 25% of businesses surveyed, £20,000 of unpaid debts was enough to put their business in jeopardy.
The government understands the pressures that late payment of debts can have on businesses, particularly SMEs, and has provided businesses with a statutory right to interest and reasonable debt recovery costs arising from late payment (under the Late Payment of Commercial Debts Act (Interest) Act 1998). The additional charges that can be levied on debtors are aimed at supporting businesses by covering some, if not all, of the cost of recovering debts owed them.
However, whilst this government support has been in place for some years, 59% of business surveyed as part of the Bacs research claimed to be unaware of measures to help companies manage and minimise their exposure to late payment.
Mike Hutchinson from Bacs said “Taking advantage of automated payments like Direct Debits can go a long way towards helping companies keep control of their monthly cash flow and help them manage their outgoings more efficiently”.
Phil Orford, chief executive of The Forum of Private Business commented on tough decisions regarding cash flow as beginning to “seriously affect a small business’s ability to fund business growth”.
In the event of late payment, Holmes & Hills’ specialist team of debt recoveryassist in the prompt recovery 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.
If you would like advice on how to recover late payments, or other debts from our experienced debt recovery solicitors, or you would like to discuss Holmes & Hills debt recovery service, call Sara Thompson at Holmes & Hills Solicitors on 01376 320456 for free initial guidance.
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