Contrary to the song, money might not be the only thing to make the world go round but it’s certainly fundamental to business success. Why, in that case, are just over half of UK SMEs having to wait up to 30 days to get paid for work they’ve already carried out?
More surprisingly companies who are the worst off are, in some cases, waiting up to 100 days for payment according to Bibby Financial services. This is adding up fast with small firms being owed £26.8bn as of July, as highlighted in figures from direct-debit company Bacs.
This delay can prove to be a fatal blow for some small businesses and, in other cases, can prevent growth within companies by stifling their ability to buy new equipment and take on more clients and staff. So why aren’t businesses getting their act together and getting paid?
Good manners together with a fear of losing positive relationships with clients are being cited as barriers standing in the way of companies and their cash. This is despite UK businesses having a legal right to claim compensation for late payments. In a survey carried out by legal firm Lovetts in September this year, it was found that 58 per cent of small to medium sized firms asked were wary of claiming compensation for late payments for fear of damaging their relationship with clients. It also found that 48 per cent never claim late payment compensation.
The voluntary Prompt Payment Code promotes 30-day terms as standard with a 60-day maximum limit. However, just a fifth of members of the Federation of Small Businesses believe that this is sufficient.
It’s hoped that the appointment of a small business commissioner who will investigate late payment claims and mediate to avoid court action will help to improve the situation for SMEs. In addition to this, change is afoot with large companies being required to publish their payment practices biannually from April next year.
Head of businesscomparison.com Philip Brennan welcomes these changes,
“Cash flow is a major issue for many small and medium-sized businesses, especially for start-ups and for companies such as recruitment agencies whose sales are short and returns are long. SMEs need to be made aware of the different finance options available to them such as invoice factoring and discounting which can prove useful in reducing the amount of time that companies are waiting for payment for goods or services already supplied . If invoice factoring is used the company will even manage your sales ledger and chase payment for you saving time and stress. It’s hoped that the appointment of a small business commissioner will help to provide an extra layer of support to UK SMEs.”
We can help you to find the best deals on invoice factoring and discounting for your business so why not compare with us today?