Smallest Companies Hit Hardest By Late Payers, Study Finds

SMEs in Britain were collectively owed £6.3 trillion in trade debt last year, according to a new study.

Research by law firm Debt Guard Solicitors revealed the typical smaller firm was owed £1.3 million on average last year, based on information submitted to Companies House, Supply Management reports.

The smallest companies were the worst hit, with the typical firm employing less than nine people and turnover under £2 million having an average of £68,000 owing to them - around 19 per cent of turnover.

In 12 per cent of cases, the debt was as high as a third of turnover, threatening the viability of the business. London accounted for nearly half of these situations.

The figure for firms with between ten and 49 employees and a turnover of £2-10 million was £936,000, or 17 per cent of turnover, while the mean level of debt for those with 50-249 staff and turnovers of £10-100 million was £3.7 million, or 13 per cent of turnover.

Commenting on the findings, Debt Guard Solicitors chief operating officer Mark Burgess said: "This research highlights there is a highly varied national trade debt picture emerging within the SME marketplace, created by unpaid and outstanding invoices.

"In the past, SMEs have been lumped together when it comes to debt management, but it is clear that micro
SMEs in particular need much greater support in this respect as they often have to wait longer for payment from larger companies."

The study comes at a time when many SMEs want to see more done to tighten up on late payment.

Small business association the Forum of Private Business reported earlier this year that 23 per cent of its own members had endured an increase in late payment in the past year, whereas only three per cent had seen payments coming into them more promptly.

Moreover, 29 per cent said the lateness of the payments had risen, whereas only eight per cent said this had been reduced.

Expert Opinion

Research of this nature demonstrates the significant impact that late payments can have on small businesses and the pressures they can face if they do not immediately receive the funds which they are owed. <br/> <br/>"It also reflects how the SME sector by its very nature is a diverse pool of businesses, with this broad description relating to businesses run solely by a single entrepreneur to larger organisations which employ hundreds of staff and have multimillion pound turnovers. <br/> <br/>"With all of this in mind, it is vital that small businesses do not ignore the importance of advice on finance, contractual and corporate issues, with specialist support from those who understand the environments they are functioning in being a particular requisite." Steven Beahan - Partner