Most small and medium sized businesses (SMEs) in the West Midlands have to wait between 30 to 60 days to receive payments for invoices, says new research by accountancy and professional services firm RSM Tenon.
The RSM Tenon research revealed the full scale of the impact of late payments – with 61% of the region’s SMEs having to wait between 30 and 60 days to get invoices settled, up from 53% six months ago.
In a further blow to SMEs, already facing challenging conditions amidst fears of ongoing tough economic conditions, the research found that only 13% of companies received payments within 30 days, down from 26% in January 2011. In total, a staggering 82% of businesses had to wait more than a month to receive any payment.
Birmingham based Bev Marsh, RSM Tenon’s director of corporate recovery, says that with thousands of companies going into liquidation every year, late payment of invoices can cause severe problems for firms, especially those already struggling to maintain cashflow levels. There also raises the prospect of business owners stalling payments to other parties in order to bridge payment gaps, potentially causing a negative ripple effect across the supply chain.
She is concerned at the current trend but believes SMEs can take steps to protect themselves and limit the impact on their business.
Bev said: “Although these figures are extremely worrying, everyone is aware of the challenging business conditions and should try to anticipate trouble and expect the unexpected – always make sure that you have a sufficient amount of money put aside for a rainy day and have a contingency plan in place if you fail to receive money on time.”
She also encouraged SMEs to ensure that they are up-to-date with all relevant legislation as well as policies and schemes that can aid their business. “One thing we noted from the recent research was that 94% either weren’t aware of, or didn’t use the Enterprise Finance Guarantee (EFG), a scheme which facilitates additional bank lending to SMEs unable to secure a commercial loan. This will help to ensure that the impact of late payment is limited.
“Striking a good transparent relationship with your suppliers and clients is also key. Make sure you know your suppliers and agree realistic payment terms upfront; this could be determined by how quickly you have to pay for materials. Background and credit history checks will also help with your planning and decision-making with regards to the provision of any services, and credit reference agencies offer a valuable source of information.
“Finally, do all you can to ensure that your business does not fall into the trap of late payments. If you are amongst the unfortunate 21% who have to wait more than 60 days to receive payments, having adequate liquidity and making use of schemes such as the EFG can make or break your business.
“If you are struggling with delayed payment, it may be worth looking into whether you have the right to claim interest on late payments, as permitted by the Late Payment of Commercial Debts Act introduced in 1998. Taking all factors into account, when considering potential orders with longer payment terms, make sure that the agreement doesn’t have an adverse effect on your business and your ability to provide goods and services.”