A new report from Siemens Financial Services (SFS) says that slow and late invoice payments mean SMEs in the UK are missing out on billions of pounds of liquid cash flow.
A typical SME spends 130 hours a year chasing outstanding invoices,[1] equating to a cost of £10.8 billion per year.[2] This cost, combined with the average value of unpaid invoices,[3] equates to £250 billion.
When compared with, larger companies, SMEs continue to suffer from slow and/or late payments disproportionately because they tend to be positioned towards the end of the supply chain.
Businesses with an annual turnover of under £1m wait on average 72 days for invoices to be paid.[4] Businesses with an annual turnover of between £1m and £10m wait on average 53-54 days.[5] This is significantly longer than the largest businesses, which typically wait 48 days.[6]
The problem is being compounded by 90 day payment terms demanded by larger organisations, which are becoming more common.[7]
Although many companies view outstanding bills as an unavoidable drain on their cash flow, solutions such as invoice finance, help address the shortfall and can be used to unlock funding.
By using invoice finance, when a company invoices its customer, up to 90% of the approved invoice total is straightaway advanced by the finance provider, with the remaining 10% paid once the customer settles the balance. Whilst companies still need to ensure they receive payment from the customer, invoice finance provides them with the essential working capital to enable other projects, such as business expansion, without having to wait for bills to be paid.
Ian Cole, Head of Invoice Finance, Siemens Financial Services comments: “SMEs make an important contribution to the economy, accounting for 47% of all private sector turnover,[8] yet they continued to be plagued by lengthy invoice terms and late payments. These continuing problems mean that an increasing number are looking to invoice finance as a solution. Indeed, figures show that invoice finance continues to grow in popularity; funds provided to SMEs recently exceeded £20 billion for the first time.[9]”
The report is available for download here: https://www.siemens.com/uk/en/home/products/financing/working-capital-finance/invoice-discounting.html
[1] ByteStart, Small firms spend 130 hours each year chasing overdue invoices, 07 June 2012, http://www.bytestart.co.uk/130-hours-overdue-invoices.html
[2] Paul Davies, The UK`s SMEs spend nearly 11 billion a year chasing overdue payments. , 27 July 2015, http://debtcol.co.uk/news/the-uks-smes-spend-nearly-11-billion-a-year-chasing-overdue-payments
[3] Unpaid invoices account for 14% of SMEs’ annual turnover: ABFA, UK SMEs owed GBP 67bn in unpaid invoices, 21 September 2015, http://www.abfa.org.uk/news/101/UK-SMEs-owed-GBP-67bn-in-unpaid-invoices
[4] Asset Based Finance Association (AFBA), Smallest businesses waiting longer than ever for payment, 13 July 2015, http://www.abfa.org.uk/news/97/Smallest-businesses-waiting-longer-than-ever-for-payment
[5] ABFA, Late Payment: An Analysis by Sector, 01 May 2015, https://www.abfa.org.uk/news/92/Late-Payment:-An-analysis-by-sector
[6] ABFA, Late Payment: An Analysis by Sector, 01 May 2015, https://www.abfa.org.uk/news/92/Late-Payment:-An-analysis-by-sector
[7] For example: http://www.telegraph.co.uk/finance/newsbysector/pharmaceuticalsandchemicals/9798947/Glaxo-disregards-suppliers-with-90-day-payment-terms.html
[8] Department for Business Innovation & Skills, Business Population Estimates for the UK and Regions in 2015, November 2015, http://www.fsb.org.uk/media-centre/small-business-statistics
[9] ABFA, UK businesses secure record amount through invoice finance – breaks GBP 20bn barrier for first time, 05 September 2016, http://www.abfa.org.uk/news/125/UK-businesses-secure-record-amount-through-invoice-finance-breaks-GBP-20bn-barrier-for-first-time#sthash.csJjUmHO.dpuf
