Asset Based Finance Association research reveals how late payments are causing serious headaches for small businesses – with the amount owed growing 8% in the last year
Late payments are a big issue for small businesses. But it seems the problem is set to become much worse, with the total cost of unpaid invoices increasing nearly a tenth in the last year and businesses having to wait even longer to see payment for the products or services they have provided.
According to research from the Asset Based Finance Association (ABFA), unpaid invoices to British SMEs now total £67.4bn, up 8% in the last year and 36% from £49.5bn in 2011. This amounts to 14% of SMEs’ annual turnover.
Manufacturing and construction businesses are among the sectors owed the most; outstanding invoices in the construction sector currently stand at £7bn, which accounts for 16% of the sector’s annual turnover. Meanwhile manufacturing businesses are owed £13.4bn by their customers, comprising 17% of their annual turnover.
Previous research from the AFBA also found that the business could be waiting on average 72 days for a payment, up from 61 days in 2009 during the height of the recession. Again manufacturing and construction businesses were among the worst affected, with manufacturing SMEs having to wait 61 days and those in construction having to wait a colossal 107 days.
As if this didn’t paint a dire enough picture already, the ABFA has warned that the £67.4bn figure is just a conservative estimate and the true value could be much larger, as the research only reflects those of 180,000 SMEs that report detailed accounts.
Jeff Longhurst, chief executive of the ABFA, said: “The scale of unpaid invoices to Britain’s SMEs has become enormous but there is no reason for it to become a barrier to investment and growth. Businesses need to recognise that their unpaid invoices are an asset. In many cases, they are the most valuable asset an SME has and they can be the key to unlocking critical and affordable funding.”
All in all, some stark news. But given the government’s introduction of a small business commissioner to help tackle the culture of late payments last July, hopefully Britain’s small businesses won’t be feeling the squeeze much longer.