By Daniel Hunter

The number of small and medium-sized businesses (SMEs) with cash available to invest in future growth has drastically fallen since 2009 due to an increase in customer late payments, according to a new study.

The longitudinal study by the UK’s largest independent invoice finance provider, Bibby Financial Services, surveys over 450 SMEs on a quarterly basis, and dates back to 2009, exploring how businesses have fared following the economic downturn.

Late payment is twice the problem for firms in 2013 than it was four years ago and the study identifies that while debtors are taking longer to pay invoices, the number of firms with cash available to invest has slumped from 20 per cent, to just two per cent.

The findings have prompted calls for bigger businesses in the UK to face up to their responsibility to support SMEs by ensuring the prompt payment of invoices.

Andy Tait, Sales and Marketing Director at Bibby Financial Services, says the research highlights the role big businesses have to ensure smaller suppliers are paid on time.

“The result of late payment is a dent in working capital as firms look to fix the problem of slow paying clients with unsustainable sources of finance such as credit cards," he said.

“Our research shows that this is evidently affecting businesses’ ability to invest which could threaten the prospect of long term economic recovery for the UK.

“While we are seeing encouraging macro-economic data, it is a different picture for smaller firms that make up the bulk of UK’s businesses. We are constantly working with SMEs to overcome funding challenges and understand their needs and frustration when it comes to this issue.

“In order to address this challenge and ensure better cash flow throughout the supply chain, big businesses need to act on their responsibility detailed under the Prompt Payment Code.

“They should also consider the recommendations outlined as part of the recent cross-party Parliamentary Inquiry* and ensure that prompt payment is a top priority.”

Findings of the study include:

• In 2009 almost one in five, 19 per cent, said debtors were paying quickly. This has now halved to less than one in ten, eight per cent, in 2013.
• At the same time the number of businesses that say they have cash to invest in growth has slumped from 20 per cent in 2009 to just two per cent in June this year.

Despite the introduction of the EU Late Payment Directive at the start of 2013, late payment of invoices remains a common frustration for SMEs and it is estimated there is £30billion in outstanding debt, according to the latest research by Bacs. It can also have the knock-on effect of restricting cash flow to other firms in the supply chain, as well as causing insolvencies and job losses as a consequence.

“Cash flow is the lifeblood of many small firms and tackling the administrative burden of chasing for invoices is crucial. Where businesses are struggling with the burden over overdue payment, we recommend they look for expert help or more flexible financial support such as invoice finance, which can help to secure a stable cash flow," Tait added.

Julie Eccleshare, the owner of PR Group — a business services provider based in Newport -said late payment is a particular problem when the knock-on effects are felt down the supply chain.

She said: “Chasing customers for payment was a real difficulty for us. We were often left waiting months for invoices to be settled, mainly because our customers were waiting for their own bills to be paid.

“This has a really negative impact on your business because you don’t have the cash flow you need to operate and can’t think of investing for the future if you’re spending a lot of time chasing up overdue invoices.

“It’s one of the reasons we took up an invoice finance solution, as this means all our credit control is taken care of by a third party, and we can keep our good relations with our customers. We have also been able to focus more on developing the business as result of our cash flow being stable.”

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