UK SMEs owed almost £16 billion in late payments

BACS, the company behind Direct Debit and BACS Direct Credit, reveals late payment problems are on the increase for UK SMEs who are collectively owed almost £16 billion.

[ClickPress, Wed Nov 08 2006] An ever increasing number of small-to-medium sized enterprises (SMEs) in the UK are experiencing problems with late payments according to BACS Payment Schemes Limited (BACS) – the leading authority on automated payments and the company behind Direct Debit and BACS Direct Credit.

Figures released by BACS today* show that more than half of SME businesses (59 per cent) have experienced problems with delayed customer or supplier payments at some time. This number is almost double that of BACS findings in 2004 which showed just a third of SMEs had experienced some sort of delayed payment.

BACS research also shows that the total amount of money owed to UK SMEs is on the increase. Collectively, the average amount of money outstanding to companies with 250 employees or less has rocketed from £11 billion two years ago, to almost £16 billion (£15,994,000,000).

Michael Chambers, managing director of BACS, said “The fact that UK SMEs are waiting on £16 billion is staggering and shows that the impact of late payments cannot be underestimated. Late payments now pose a considerable problem for more than half of all SMEs in Great Britain – if this figure continues to rise, the knock on effect for the UK economy could be disastrous. Business and financial managers up and down the country need to tackle late payment issues head on to safeguard the commercial interests of their organisations.”

SMEs that want to address late payment issues before they get a grip on their business have a number of helpful tools at their disposal. According to BACS, 69 per cent of all small business managers and 91 per cent of financial directors in mid-to-large corporates, would either be prepared or would prefer to receive automated payments on an agreed date to help ensure funds are cleared directly into bank accounts. However, many are not taking simple steps towards encouraging payment by Direct Debit and BACS Direct Credit. BACS research reveals that 59 per cent of small businesses and 38 per cent of mid / large corporates do not even include bank account details on bills.

In a bid to encourage good working practices, BACS is stepping up its ‘Pay Me Direct’ campaign and encouraging small business owners to ensure they include their bank account details on invoices and billing statements along with the Pay Me Direct message. The company has created a set of free materials that SMEs can download and use in correspondence with customers and suppliers. BACS has also developed ten top tips containing advice on preventing late payments in association with The Better Payment Practice Group, as part of a joint initiative to provide expert information to businesses.

Commenting, Bill Barrott from The Better Payment Practice Group said: “Considering the dangers inherent in late payments, it is amazing how many companies do not take precautions to protect themselves. We are committed to improving the payment culture of organisations trading in the UK and have established a Better Payment Practice Code, which urges firms to adopt a responsible attitude to paying on time. Working together with organisations like BACS we can offer expert advice and guidance to UK businesses, and help minimise the impact of problems associated with late payment.”

For more practical advice on dealing with late payments, organisations should go to www.paymedirect.co.uk.

For more information about The Better Payment Practice Campaign, please go to: http://www.payontime.co.uk/

Top Tips

1. Boost cashflow overnight
When you’re paid electronically, the funds are cleared and available for use on the day they’re received earning interest immediately as you don’t have to wait for a cheque to clear.

2. Be proactive
Always chase early. A polite call or email can often pre-empt a payment problem. Send a letter to suppliers encouraging them to pay you electronically (whilst it’s often used as an excuse, some cheques actually do get lost in the post). Being proactive will help build relationships with your customers’ accounts department.

3. Do your homework
Avoid risks when supplying new customers by running a credit check. There are many associations and independent bodies e.g. Companies House who can provide status reports for a reasonable fee.

4. Demand interest
Demand interest on late payments – you are legally entitled to it. For information on your legal rights refer to the Late Payment Legislation

5. Act fast and save money
Our research suggests that transactions made using BACS Direct Credit costs significantly less to process than a cheque payment.

6. Play to your strengths
BACS Direct Credit saves time and money. Why waste time signing and paying in cheques when you can let a highly automated system take the strain? You’re then free to focus on more productive issues.

7. They save, you save
Cheque stationery can be expensive due to the need to prevent cheque fraud. BACS Direct Credit eliminates the cost of cheques and reduces postage and other costs.

8. Better payment terms
Use a reliable payment system and you’ve a good argument to negotiate more favourable payment terms from suppliers

9. You win, we all win
If you get a reputation as a late payer, word will eventually get around. If all businesses use the tools at hand to settle accounts quickly and efficiently, the economy as a whole will feel the benefit with positive spin-offs all round.

10. Be upfront about it.
It makes sense to explain from the word go that you actively encourage automated payments. It’s the best way to start any business relationship. Make sure you put your sort code and account number on all your invoices - and print “Pay Me Direct” alongside.

(ends)

*Figures were obtained as part of a Market Research Programme conducted on behalf of BACS in June 2006. Business Research specialists, Continental Research conducted 500 business interviews with managing directors, financial directors and senior managers of UK companies. Data has been weighted to be representative of 727,000 SME’s and of 1,095,000 small businesses and 147,000 mid/large corporates in the UK.

About BACS Payment Schemes Ltd (BACS):
BACS has been at the forefront of delivering efficient, reliable and secure electronic funds transfers between banks and businesses for almost 40 years.

As a membership-based 'not-for-profit' industry body, owned by some of the UK and Europe’s leading banks and building societies, BACS develops, enhances and promotes the use and integrity of automated payments and payment related services.

Through its two principal electronic payment services, Direct Debit and BACS Direct Credit, it is responsible for the processing of more than 5.1 billion financial transactions a year, with in excess of 75 million payments on a peak day.

BACS’ success is based on its ability to improve technology for the benefit of banks, businesses and consumers. Since 1 January, payment files are delivered via BACSTEL-IP, a new delivery channel developed in response to the rapidly growing demand for electronic payment services. It provides businesses with the highest level of security in payment submissions, even faster payment confirmation and the ability to track the status of payments online. For further information please visit www.bacs.co.uk.

More about Direct Debit:
Approximately 15,000 organisations currently choose Direct Debit as the simplest, safest and most cost effective way to collect regular or occasional payments from their customers - both business and consumers.

A Direct Debit is an instruction from a customer to their bank or building society authorising an organisation to collect varying amounts from their account, as long as the customer has been given advance notice of the collection amounts and dates. This can be used to ensure regular, safe and efficient payments of anything from household bills to charitable donations.

For further information please contact the BACS press office on 01223 557 601

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