Late payments crisis on horizon for SMEs

Spiralling late payment debts could cause the UK to slide into a recession, with SMEs waiting for £18.6bn in unpaid invoices according to a report released today.
Figures unveiled by automated payment organisation Bacs Payment Schemes (Bacs) revealed that although fewer SMEs (defined as 250 employees or less) were experiencing late payment problems than a year ago ­ 59 per cent in 2006 compared with 51 per cent in 2007 ­ the value of outstanding money has increased by £2.6bn year on year.
According to the research, the average amount owed to an SME is about £30,000, with 29 per cent of respondents claiming they could go bust if faced with overdue invoices of £20,000.
Geographical location also came into the equation, with SMEs in the greater London area faring far worse ­ 65 per cent experienced problems with late payments compared with the national average of 51 per cent. These firms were owed an average of £51,000, and spent an average of 38 days a year chasing late payments.
In comparison, 42 per cent of SMEs in the north east experienced late payments problems, and 45 per cent in the north west were chasing overdue invoices in 2007.
Michael Chambers, managing director of Bacs, said: “The most striking thing is that the scale of late payments has grown in value yet again, despite firms investing a significant amount of time and money to stop the problem escalating.”
“UK SMEs need to be smarter about tackling late payments and should use a range of options, including automated payments, to stamp out the problem once and for all.”
Channel players agreed the year ahead would be tough, but played down recession fears.
John Carter, co-founder of credit management firm e-bcm, said: “Judging from the figures from Bacs, it could be a tough year for rese llers. The most important thing is to make sure you get paid for what you’ve sold.
“It will be a very difficult year, and with Dell chucking kit into Tesco, selling hardware and kit is not the way forward. The whole channel needs to get involved in services. The partners that are making money are doing it on recurring revenues.”
Robert May, managing director of VAR Ramsac, said: “The UK is prone to talking itself into things and if people keep believing recession rumours then it may end up in one. Good cash flow and business management has always been important in the channel because it is just good business sense. That’s something that hasn’t changed and won’t change.”
Peter Austin, general manager of Siemens Financial Services said: “The negative outlook for 2008 will cause businesses to tighten their belts so VARs need to be creative in how they make customers afford a solution. By offering finance options resellers will also address the problem of debtor days.”
Eddie Pacey, director of credit for distributor Bell Micro, said: “There are various messages around at the moment concerning 2008 going into recession as a follow up to the credit crunch. The reality is that, yes it will be a tough year in terms of the ability to finance but not in terms of businesses performance.
“Late payments are a self inflicted issue that have been going on for years. However, bigger firms may be bullying smaller companies in terms of finance. Enterprises need to balance their extended credit periods from their own suppliers.”
VARs should factor for late payments