SME Business News

While the recession may officially be over, trading conditions for Britain’s SMEs remain extremely challenging, with 80% of businesses reporting increased late payment over the past six month according to new research commissioned by Hilton-Baird Financial Solutions, in conjunction with Credit Today.

Almost one in three businesses (32%) questioned in the report currently classified 30% or more of their debtor book as aged debt. When it comes to paying up, 23% stated that large corporations are the worst offenders, however 21% of respondents pointed the finger at other SMEs and 11% blamed professional firms.

Late payment on this scale can have a dangerous impact on a business’ cashflow, as well as diverting time and money from core business activity into chasing payments. The research showed 37% of businesses acknowledge that being paid late has a knock-on effect on their ability to make their own payments, with a further 28% saying that they have delayed payments themselves as they struggle to juggle cashflow.

Despite these worrying statistics, the vast majority of businesses appear reluctant to take action in order to protect their business for fear of jeopardising valuable client relationships. Only 16% add on late payment interest and just 10% would consider outsourcing their collections function to get the best results.

Evette Orams, managing director of Hilton-Baird Financial Solutions said: “The recession might be over, but the rising tide of late payment identified in our study demonstrates just how challenging life still is for many SMEs. Failure to settle accounts on time can often start a vicious circle, have devastating effects and even lead to business failure.”

“There are ways for SMEs to mitigate this risk but our research reveals that take up for this support is currently very low with businesses fearful that taking a hard line could lose them vital business. This is extremely damaging thinking and business owners are urged not to chase turnover but to focus on good practises such as thoroughly credit checking new and existing clients and adhering to appropriate collections processes. Also, settling a business’ own commitments on time can have a positive impact on its credit rating.

Options such as credit insurance - employed either as a stand-alone facility or bolted onto an invoice finance facility - can safeguard a business against the risks associated with late payment and debtor failure. Additionally, having flexible funding in place can underpin growth out of the recovery.”

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