Late payments hitting SME pockets

The channel's main customer base is suffering because of late payments and its negative impact on cash flow

The SME market is seen as the key customer base for most resellers but many of those firms are suffering financially and need more recognition of their plight.

Late payments are causing major problems and not only hindering the chances of small firms making IT investments but in extreme cases are pushing them close to going under.

Research from 250,000 SMEs that provides an insight into the health of the market found that just under half were working with a positive cash flow last year.

The vast majority operated in the red, with late payments one of the main factors contributing to the cash flow problems.

Last year saw 30 day invoices paid on average after 40 days and the largest FTSE 350 firms were the worst offenders when it came to settling accounts. So far this year the trend has continued and the average time is now 42 days.

Findings from  accountancy specialist Xero has fingered the food producers, construction and materials and household goods sectors as the worst payers.

Anyone dealing with the pharmaceuticals and biotech sector will have probably found that they are the most inconsistent when it came to settling their invoices.

The government has pledged to do more to end late payments and Vicky Pryce, economist and previous director general for Economics at the Department for Business, Innovation and Skills, said that the impact on businesses could not be exaggerated.

Work done by the European Commission looking at both business to business and government to business payments found that late payments were directly associated with worsening firms’ cash flow positions, and particularly for smaller firms.  Many are left with no option but to request extensions of overdraft facilities and increases in their financing costs and in bank borrowings. Late payments prevent the economy from reaching its productive potential," she said.

The hope in the industry is that a greater exposure of the problems with late payments and the impact on the health of SMEs will help reduce the problems.

“Sharing this insight and considering it in the context of the challenges small businesses face will help the small business community gain a deeper understanding of the collective experience.  We hope that greater collective understanding of the small business economy will help firms, and their suppliers, develop their own economies of scale and so help them to close the gap on larger enterprises which traditionally benefit from those economies," said Xero UK managing director and co-founder Gary Turner.

Read more on Finance and Credit