The worsening problem of late payments means that the average amount of debt being chased by small businesses has increased to £3,000 per company, according to figures compiled by Barclays.
The bank estimated earlier this year that £8.3bn is owed to small businesses at any time. However, John Davis, marketing director for Barclays Local Business, said the latest figures, taken from the bank’s internal data, show that the situation is becoming more dire.
About 40 per cent of small businesses now have late payment problems, according to Mr Davis. “Small businesses generally suffer more than others,” he said. “They tend to pay relatively promptly, but are paid relatively slowly.”
Keeping cash flowing is vital to business survival, particularly as the financial crisis tightens its grip and many businesses struggle with falling sales.
The Forum of Private Business (FPB), which is compiling a hall of shame of large companies with bad records on payment, says the worst offenders are lengthening the period they settle bills and tightening the terms.
Among its most recent additions is Alliance Boots, the pharmaceuticals group, which told suppliers it was extending its payment terms to 75 days from the end of the month an invoice is received, meaning that businesses could wait up to 105 days for payment. The company also imposed a settlement charge of 2.5 per cent.
“It is bullying tactics,” said Phil McCabe, FPB spokesman. “We are receiving more reports of imposed changes.”
He added that the damage done by late payments has been magnified because the crisis in the financial markets has made it almost impossible to borrow money to cover shortfalls.
Debt is a particular problem for small but growing businesses, according to Creditsafe, a debt recovery and credit reporting company. It calculated that businesses with a turnover between £1m and £5m devote 6.5 per cent of total expenditure to servicing debt, compared with only 1.8 per cent for businesses with a turn-over of £251,000 to £500,000.
David Knowles, marketing director for Creditsafe UK, said: “As SMEs are predominantly owned and managed by the same individual, the avenues for securing credit are far more restrictive than for larger enterprises. A typical SME does not have shareholder capital to draw through rights issues or the opportunity to engage with institutional investors.”
Barclays has started offering a free credit checking service to its small business customers, allowing company owners to see the credit ratings of up to five businesses.
The service includes automatic e-mail notification if the credit ratings of the businesses change and a free solicitor’s letter to put pressure on companies for prompter payment.
IRS, a Barclays customer that provides industrial refrigeration to businesses, hospitals and universities, claims it was able to resolve a bill for £2,100, which had remained unpaid for more than a year, through the credit checking service.
