East Anglia: Late paying corporates ‘threaten stability of SME sector’

THE financial stability of the region’s small and medium-sized business community is being put at risk by large corporates that are using their size to secure unworkable payment terms, according to new research from Bibby Financial Services.

Conducted by the invoice finance specialist and One Poll, the survey of 1,000 small and medium-sized businesses found that 29% of owners and managers in East Anglia feel they have had no choice but to extend payment terms to larger customers as they fear losing valuable contracts.

With UK insolvencies in the final quarter of 2011 up by 7.2% on the same period in 2010 and the economic outlook set to remain tough well in to the new financial year, getting paid on time in order to maintain a healthy cash flow is crucial for small and medium-sized businesses.

Recognising that getting paid on time is one area of business they cannot afford to comprise on, the majority of owners and managers in the region are taking steps to exercise sound credit management. The research found that 67% are trying to enforce payment terms of 30 days, while 22% aim to get monies due within 60 days of invoicing.

Despite the consequences of not getting paid within these terms – 59% reported they simply cannot operate if they have to wait longer than 60 days for payment – the majority of SMEs remain at the mercy of larger organisations.

In fact, 18% of small and medium sized-businesses have had such a bad experience with customer late payment that they have reluctantly taken their case to the small claims court. A further 10% have had to either use a debt collection agency or simply write off and absorb debts due to the escalating cost and time involved in pursuing payment.

Sharon Wiltshire ofr Bibby Financial Services East Anglia said: “Rather than putting owners and managers in an impossible situation and using their size to their advantage, larger organisations should lead by example and exercise good corporate citizenship when it comes to working with small and medium sized businesses.

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“While the European Late Payment Directive coming in to force in Spring 2013 will go some way to improve the UK’s late payment culture, for smaller organisations, the challenges associated with waiting for payment remain. Not only does it have a serious impact on cash flow, many owners and managers are spending more and more of their valuable time chasing overdue payment instead of focusing on sales and growth.”

She added: “Working with an invoice finance company is an ideal option for businesses which need to improve cash flow and are struggling to collect customer late payment.

“As invoices are raised, the invoice financier releases a percentage of funds against these invoices and then collects the payment directly from the customer.”