SMEs are owed £67.4bn in unpaid invoices, up 8% from £62.5bn in the last year alone, with the construction sector one of the worst hit by late payment, according to research by the Asset Based Finance Association (ABFA)
The problem is also getting worse with the total outstanding debt rising 36% from £49.5bn in 2011 as the extent of overdue payments and extended payment times grows and the figure only includes the invoices of the 180,000 SMEs that report detailed accounts, meaning that a large proportion of unpaid invoices are not even counted in the total figures.
The ABFA research showed that unpaid invoices have grown by over a third since 2011. Across SMEs as a whole, unpaid invoices amount to 14% of annual turnover.
Manufacturing and construction are among the sectors with most unpaid invoices owed to SMEs.
Outstanding invoices in the construction sector currently stand at £7bn, amounting to 16% of annual turnover in the sector.
The cashflow problem for business is exacerbated by long delays in payment to SMEs with the average waiting time for invoice payments running at 72 days, up from 61 days at the height of the recession in 2009.
Jeff Longhurst, chief executive of the ABFA, said: ‘The scale of unpaid invoices to Britain’s SMEs has become enormous, but there is no reason for it to become a barrier to investment and growth.’
As providers of asset finance and invoice factoring, members of the ABFA currently provide £9bn in finance to SMEs against the value of their invoices, and at any one time will be providing £19.3bn overall in asset based finance to businesses.
Jonathan Russell, partner at UK200Group member firm ReesRussell said: ‘It is true that late payment of invoices by itself is not a barrier to growth but margins and profitability is. Late payment has a number of impacts, it slows up the money flow through a business and while invoice finance may well release some of that liquidity it usually does not release it all and it has a cost of its own.
‘Late payment can be an indicator of eventual non-payment which is a major blow to any business; reduced margins and profitability ultimately means that the ultimate requirement for growth – retained profits – is simply not there.
‘Just because debts can be financed does not mean they should be and it is the actual receipt of the profit element of trading which ultimately leads to sustainable growth.’
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