Late-payers put the squeeze on small companies

Firms are waiting an average of 35 days longer than the originally agreed payment terms, a study by Bacs Payment Schemes reported.

The figure has dropped marginally, by an average of 1.4 days, since June last year, but still causes considerable cash flow problems for businesses.

Earlier this month, Alan Hall, the regional director of manufacturing organisation EEF, warned that many businesses could fail despite Britain's emergence from recession because it was now, rather than at the start of a slump, that they found cash harder to come by.

Northern SMEs said large companies were the worst for late payment (38 per cent) although one in six (16 per cent) of respondents to Bacs pointed the finger at fellow SMEs, with a further 13 per cent blaming sole traders.

One in 25 cited not-for-profit organisations and the Government as the worst payers.

Michael Chambers, managing director of Bacs, the organisation behind Direct Debit and Bacs Direct Credit, said: "Small businesses rely on receiving payments on time so that they can maintain cash flow and ensure the business can run on a day-to-day basis. Our research highlights the continued widespread nature and real impact of the late payment problem, which was affecting 236,000 SMEs in the North in December last year."

Cash flow was the most common reason given for overdue payments with one third of northern SMEs describing it as the main problem.

The survey also found the total amount owed to Northern SMEs had fallen, however, from 7.1bn in June last year to 6.8bn in December. The number of Northern SMEs affected also fell from 295,000 to 236,000 but the average amount owed grew.

Phil McCabe, spokesman for the Forum of Private Business, said: "Late payment is a huge problem for small businesses and it's highly disappointing to hear small firms are having to wait even longer to be paid.

"Late payment is frequently cited as the number one problem facing our members, eclipsing even taxation and regulation. With its damaging impact on a company's cashflow, it can cause a perfectly viable and successful firm to fold."