Late payments have left small businesses in the UK out of pocket to the tune of £26 billion, with payment taking an astonishing 72 days on average.
Businesses with turnovers of under £1million are waiting longer than ever to be paid, despite the strengthening economic recovery, according to the Asset Based Finance Association.
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And this wait has left five million UK firms having to chase payments, amounting to a whopping £26 billion.
Large corporations only wait 47 days
While the current state of affairs stings for SMEs, the salt in the wound is the fact that larger businesses only have to wait two thirds as long.
Each year small businesses spend approximately £10.8 billion in attempts to recover their money from overdue payments.
The amount owed to SMEs has dropped in recent years, but this is because business owners have had to “dip into their pockets to chase money they are owed,” according to Mike Hutchinson, Director of Scheme Support and Development at BACS.
Cash flow problems cause SMEs to fail
While the average amount of money owed to small businesses has decreased, late payments are still a very real danger to burgeoning businesses.
Difficulties with cashflow is the most common reason that business ventures fail, which can be caused by bad debt or giving debtors longer to pay, among other things.
And when SMEs have to delay their own payments because they are yet to be paid themselves, the problem only gets worse.
Government to appoint small business commissioner
To tackle the problem the government plans to appoint a small business commissioner, who will be in charge of resolving the issues around late payments.
The post was suggested after a consultation last year found that the majority of small businesses and professional bodies who represent them thought having a small business commissioner would be a step in the right direction.
The government has now launched a second consultation to establish how the new commissioner will deal with complaints. The consultation closes 7 December.
Late payment penalties - collecting late payments
If you have outstanding invoices, you can use the legal system to reclaim the money owed and may be entitled to compensation and late payment interest.
Under the Late Payment of Commercial Debts (Interest) Act 1998, interest on “qualifying debt” is charged at 8.5%.
By entering the payment due date with the date it was actually paid - or today’s date, if it’s yet to be paid - into a late payment calculator, you can work out how much you may be owed in interest and compensation.
However, before you charge interest, make sure you consult with legal counsel to ensure you’re within your rights to do so.