Late payments still hurting small firms

Almost three quarters (73%) of businesses have been paid late in the last 12 months, according to a new paper by the Federation of Small Businesses (FSB) and for the majority (77%), it is by other businesses.

Small firms do not have the same cashflow buffers as larger businesses and so being paid late causes a vicious circle, meaning that 38% of members that are paid late say they then pay their suppliers late.

The survey showed that 43% of members are currently waiting for between £1 and £4,999. And in the past 12 months, 56% of members have written-off invoices worth between £1 and £9,999 because of non-payment and 6% of members in the construction sector have written off £35,000 or more.

With 53% of small business owners saying that they spend between one and six hours per week chasing late payments, firms can take control by:

• Making sure there is a contract in place which confirms payment times and then penalties if payment is late - such as interest charges
• Offering a discount for prompt payment, dependent on the relationship with the purchaser
• Asking for payment up-front, or a deposit before work begins

John Walker, national chairman, Federation of Small Businesses, said: "There are always going to be companies that pay late, but there are steps that businesses can put in place to make sure that they don't fall foul of the issue. We are pleased that the Government has stepped-up to the Prompt Payment Code - but there is more work to be done.

"In the current economic climate, every penny counts and for small businesses a late invoice can mean not being able to pay their staff. We need to see all businesses ensuring that they make payments on time if the private sector is to get on with the job in hand of strengthening the recovery."