SME late payment problems rife in distribution sector

As late payments to small and medium sized enterprises (SMEs) spiral out of control across Great Britain, reaching an all time high of almost 26 billion [1], new research reveals the problem of overdue invoices is rife in the distribution sector.

Figures from Bacs Payment Schemes Limited (Bacs) show that over half (56%) of SMEs in this area of industry have experienced a problem with an overdue invoice at one time or another. Numbers also show the average amount outstanding to individual companies in this region, at any one time, is a massive 61,000 almost twice the 38,000 figure reported nationally.

And its not just the widespread incidence and value of late payment problems across distribution companies that is cause for concern. When questioned by Bacs, the company behind Direct Debit and Bacs Direct Credit, SMEs in the sector said they were waiting an average of 46.6 days beyond agreed payment terms for invoices to be settled. This is a working week longer than the figure reported nationally of 41.6 days and greatly in excess of feedback from businesses in the service sector that wait, on average, just 35.3 days.

Other statistics from Bacs showed that:
- 31% of SMEs operating in the distribution sector ask for payment upon receipt of invoice
- 2% ask for payment within 7 days
- 2% request payment within 10 days
- 2% ask for invoices to be settled within 14 days
- Half (50%) ask for payment 30 days / end of month after receipt of invoice
- 8% state 60 days after receipt of invoice
- 84% of distribution SMEs want to make their business more efficient in 2009
- Over half of all manufacturing SMEs (54%) want to keep more on top of debtors
- 39% of distribution SMEs plan to automate more of their essential business payments

Michael Chambers, managing director of Bacs, said: Our figures show that the scale of the late payments problem is worse in the distribution sector than in other areas of business. 61,000 is an inordinate amount of money for an SME to be owed and waiting 46.6 days beyond agreed terms for this money to be paid is unacceptable. Distribution SMEs must do something to tackle the problem head on.

With small businesses currently disappearing at a rate of 86 [2] organisations every day, its vital that cash continues to flow in as promptly as possible. With the government introducing a system of paying public sector invoices within ten days [3], its surprising that more SMEs in distribution havent replicated this and are still prepared to offer lengthy payment terms. Reducing agreed payment periods and encouraging suppliers and customers to pay money straight into a bank account by Bacs Direct Credit, rather than waiting for a cheque to arrive, could help shorten delays.

For more information about late payments and how to tackle them head on, please go to: www.paymedirect.co.uk where Bacs has developed a series of hints and tips for encouraging prompt payment. You can also download a map of Great Britain that Bacs has prepared. This shows regional and sector differences when it comes to late payment problems.