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SMEs turn away business to fight back against late payments

January 25th, 2013

 

  • Over a fifth of small and medium sized businesses (22%) have declined future business from customers in the last year in an attempt to tackle late payments
  • In total, UK SMEs are currently owed more than £36 billion1 in late payments causing serious cash flow problems

Late payments continue to be a critical problem for the nation’s small and medium businesses with 85% of SMEs2 having experienced these over the last two years. Nearly half of these businesses (47%) claim their worst repeat offenders pay late three times a year or more.

New Barclays research2 carried out amongst over 1,100 senior decision makers in SMEs in Britain, reveals that in the past year, over a fifth (22%) have declined to do future business with customers who have paid late in the past.

Sue Hayes, Managing Director of Barclays Business banking, said:

“Minimising late payments and effectively managing cash flow is crucial for the survival, as well as the growth of small businesses.  With one in five businesses that cease trading citing bad debt as the reason3, it is vital that SMEs tackle this problem and take action before it is too late.”

The research also reveals that the impact of late payments on decision makers is often significant with nearly a  third (30%) of respondents, who have experienced late payments in the past two years, having to use personal money or assets to boost their cash flow.  A fifth (20%) of respondents have suffered extreme stress as a result, and some cases (11%) late payments have nearly caused a business to fail.

The problem is made all the more serious by the length of time businesses have to wait. Two thirds (66%) of respondents whose businesses have experienced late payment say that on average they have had to wait more than a month past the agreed payment terms for a bill to be paid, whilst one in ten (11%) say they have to wait more than six months.

Not all businesses are in a position to refuse future custom from late payers, and in the last year many have taken action in other ways.  Sixty per cent (60%) have communicated more frequently with or chased the customer’s finance team, almost a third (32%) have threatened to or taken out legal action, and almost a third (30%) have requested payment up-front.

Sue Hayes continues:

“Faced with a continually challenging business environment, small businesses clearly have no other option than to take action against customers who repeatedly pay late.  Whilst it goes against all natural business instincts to turn customers away, it is entirely understandable when weighed up against the overall impact of the late payment on the future of the business. Using a product like CreditFocus to check the credit worthiness of the business you are looking to trade with is also a great idea.”

CREDITFOCUS, Barclays credit-checking service helps owner managers assess the creditworthiness of the business they trade with.  The service can also provide help by preparing legal letters chasing payments, which are successful in the majority of cases.

CREDITFOCUS Classic, is free to Barclays customers until March 2013 and includes five credit checks, subsequent credit monitoring and one debt recovery solicitor letter. The more comprehensive version, CREDITFOCUS Pro, offers unlimited credit checks, ongoing monitoring of customers, as well as unlimited debt recovery solicitor’s letters. It is available to non-Barclays customers for £15 + VAT per month on a 12-month contact. The price for Barclays customers in £10 + VAT per month.

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