SMEs hit by late payments and interest rate rises

Getting customers to pay their bills is the number one problem facing small to medium size enterprises in Britain, according to new research.

The survey was carried out by the Asset Based Finance Association (ABFA). It showed that nearly half of all SMEs found it difficult to get paid by customers within their payment terms. As many as 44% of companies report that customers have asked for extended credit in the last six months.

The Chief Executive of ABFA, Kate Sharp, said: "Cashflow problems, caused by limited working capital and poor credit management, is a major contributing factor to corporate failure in this country."

"In order to reduce this type of pressure it's important to examine where the cash is being tied up. More often than not unpaid invoices are the main culprit. Britain's SMEs must keep abreast of their debtor schedule to ensure they have the capital needed to support the business."

ABFA’s research also showed that 48% of SMEs believed that interest rises in 2007 had a detrimental effect on their business. Firms turning over less than £100,000 were the worst affected. In spite of these difficulties, 40% of firms believed they were financially robust and 55% expected to increase their turnover this year.

The ABFA findings are supported by research done by BACs which showed that over the last year, the amount of outstanding payments owed to SMEs rose by £2.6bn to £18.6bn. At any given time, the average SME is owed £30,000.

In the current climate brought on by the credit crunch and falling confidence, the incidence of late payment is likely to increase. Firms should seek legal advice as soon as possible when faced with such problems. Early action by a solicitor will often result in prompt payment which can help a company’s cash flow and even ensure it survives in a difficult financial climate.