Late payments threaten to bankrupt small companies
CASH flow problems are becoming increasingly common among small businesses as clients fail to make payments on time in the downturn, a new survey has shown.
Nearly a quarter of smaller firms polled by the Forum of Private Business (FPB) cited a decline in prompt payment as the single biggest problem facing them in the crisis. They added that it is typically larger businesses which are to blame for making late payments.
The FPB’s report said 23 per cent of respondents claimed a deterioration of prompt payment over recent months was the “key issue” affecting their business, while just three per cent felt the matter had improved.
Phil Orford, chief executive of the FPB, said that “cash flow is being decimated by credit restrictions and declining trade”, before adding that although poor payment has always been an issue, the situation has become so bad that the subsequent cash flow problems are now “threatening the very
survival of many businesses”.
Under the Late Payment of Commercial Debts (Interest) Act 1998, businesses have a statutory right to interest, which theoretically allows them to charge for late payments. In practice, however, this right is rarely exercised for fear of driving away any future business.
Orford is calling on the UK’s biggest companies “to take the lead and pledge to pay their suppliers on time”, but the survey has revealed that there are other problems besides late payment. Other vexing issues for small businesses were lack of sales, having to comply with health and safety regulations, and declining bank lending.
Banks were criticised for tardy decision making and steep costs.