The average amount of overdue invoices owed to SMEs is now £66,770, a 10% year-on-year increase.
A third of SMEs have also written off an average of almost £30,000 in the past 12 months due to customer insolvency or payment default, according to the research by Bibby Financial Services.
Amid tough trading conditions, the study found that 62% of SMEs said their customers are taking longer to pay in full compared to a year ago, and 19% admitted they have delayed paying creditors to preserve their own cashflow.
Government figures show that late payment costs the UK economy an annual £11 billion, with 38 businesses closing every day because they are not paid on time, and business owners spending 86 hours a year chasing invoices.
The government announced new measures last month aimed at tackling the issue including the Small Business Commissioner being able to big firms that persistently pay late as well as a 60-day cap on payment terms for large firms when paying smaller suppliers and mandatory interest on late payments.
Derek Ryan, CEO for North West Europe at Bibby Financial Services, said:
“[The research] is a clear reflection of the uncertainty many firms are currently facing because of lingering high costs and trading volatility. However, unlike late payment, which is a widely accepted issue – we’re pleased to see the government is now taking action on this – bad debt is the hidden cost-of-doing-business. It’s a widespread problem which has significant knock-on effects on costs across supply chains, as those writing-off sums owed increase margins to cover their own losses.
“There’s also a strong indication that, in certain cases, organisations are adopting deliberate payment delay tactics to protect their own financial positions. This is a worrying development that should ring alarm bells for businesses of all sizes, as well as for policymakers seeking to safeguard the resilience of supply chains across the UK economy.”
Theo Noyek, director at Theo’s Timber, added:
“We’re seeing the impact of the conflict in the Middle East play out very clearly on global supply chains.
“Much of our materials supply comes from China and the Far East through the Strait of Hormuz. But shipping diversions there have pushed up typical delivery times from 12 to 16 weeks, and every delay racks up costs and prices.
“This is having a significant knock-on impact for our customers, including driving up insolvencies which seem stubbornly high and reminiscent of 2008.”
Advice for small businesses on tackling late payment
- Small Business Commissioner: Top tips to contract well and get paid on time
- How SMEs can reduce late payment from customers
- Tackling late payments in an uncertain business landscape
- Chasing late payments? Small Business Commissioner can help