An increasing amount of SMEs are suffering from delayed invoice payments as a study reveals one in six small firms are forced into the ‘90 day club’
More than half (61 per cent) of invoices issued by UK small and medium sized enterprises (SMEs) remain unpaid within the debtor day period, according to new research from Amicus Commercial Finance. Of these, almost three-quarters (70 per cent) of firms say they rely on getting paid during their debtor day period to avoid facing a shortage of working capital.
The research shows that one in six (16 per cent) SME invoices remains unpaid after 90 days and of these, almost half (7 per cent) have yet to be settled after six months.
Medium-sized businesses with between 50 and 249 employees are the worst affected by delayed payments with a quarter (24 per cent) of invoices remaining unpaid after their debtor day period or not at all.
The study underlines the extent to which SMEs often rely on a small number of customers and delayed payments from these can have serious consequences; according to the findings, SMEs’ top three customers on average account for almost half (49 per cent) of their overall revenue.
As well as the financial implications, Amicus Commercial Finance examines the psychological impact on business owners caused by lengthy payment delays. Almost a third (28 per cent) say it has caused them considerable stress and anxiety and a fifth (19 per cent) report that their frustration had turned into anger. One in ten (10 per cent) admit they became scared their business would go bust.
In order to mitigate the impact of late payments, growing numbers of SMEs turn to invoice finance to secure reliable cashflow. While 8 per cent of firms say they currently use invoice finance, an additional 19 per cent of business owners plan to use it in future, including 11 per cent in the next 12 months.
John Wilde, managing director of Amicus Commercial Finance, comments, ‘Invoice payment terms are all too often ignored and for small firms this can put their cashflow under intolerable pressure, particularly when late payers are also large customers.
‘For business owners with healthy sales, the frustration of being forced to take out business loans or extend their overdraft to avoid becoming insolvent can be overwhelming. Wilde concludes, ‘Given this, it’s understandable that small firms are increasingly turning to invoice finance as a way of converting unpaid debts into instant working capital. Here at Amicus Commercial Finance, we combine deep sector experience with a high-touch personal service and cutting-edge technology to make the process as straightforward and efficient as possible.’