Despite the economic recovery, which has seen compulsory liquidations hit their lowest levels since 1989, research from a leading alternative finance provider has found that the number of UK SMEs receiving late payments is continuing to rise. And that’s despite the government’s attempts to enforce a code of prompt payment.

The SME Confidence Tracker is a survey over 1,000 of the UK’s small and medium sized business. Conducted on a quarterly basis, the survey charts the confidence of business owners and senior decision makers managing businesses with an average turnover of £1.2 million.

The results of the research show that of the 1,011 businesses surveyed, the number receiving late payments, which is defined as anything over 30 days, has risen by nine percent when compared to same period last year.

Regional disparities

Of the SMEs canvassed in the survey, more than half admitted to waiting more than 30 days for payment; a quarter had waited between 31 and 45 days; 20 percent waited between 41 and 60 days; and 6 percent waited between 61 and 100 days.

The results showed some regional disparities, with those businesses in the West Midlands, Yorkshire, Humberside and the North West worst affected by late payments. However, many of the remaining regions were not far behind.

In Yorkshire and Humberside, a tenth of the respondents said they had been made to wait between 61 and 100 days for payment during the second quarter of 2015. While in the North East, the number of SMEs receiving late payments doubled when compared to the same period last year.

The late payment picture for businesses in the South East and South West of the country was much the same, with a substantial increase in the number of SMEs affected. However, it was not all doom and gloom, with late payments in Scotland falling for the period.

The construction sector continues to suffer

Only last week we reported on the high level of insolvencies in the construction sector and the potential knock-on effect caused by business failures in the supply chain. Now there’s more bad news, with construction companies suffering from the highest proportion of late payments of any sector.

More than half (55 percent) of the small and medium sized businesses in the construction sector had to wait more than 30 days for a payment, up 11 percent when compared to the same quarter last year. There were also worrying signs for the manufacturing and wholesale sectors, both of which experienced a similar increase.

All too often, SMEs must choose whether to put up with crippling payment terms or potentially lose out on business. It is often larger businesses that are the worst offenders, with many SMEs preferring to stay quiet rather than losing out on potentially lucrative contracts with big companies.

Some kind of invoice finance arrangement can often help alleviate the cash-flow problems and you can see why asset based finance has increased 200% year on year for the last three years.

Is the Prompt Payment Code working?

Given these latest statistics, the obvious answer would be no. But why is this government-backed code proving to be so ineffective? One glaring problem is the fact that no sanctions are taken against businesses that fail to comply with the code’s requirements to settle within the terms agreed at the outset of a contract.

There also aren’t any sanctions against businesses that don’t sign up to the code, a decision which approximately 40 percent of the total UK supply chain has made. So, there really is nothing to stop larger businesses taking what, in effect, is an interest-free loan.

At the moment, the market imbalance means small businesses are reluctant to rock the boat with the larger, more powerful customers they depend on for survival. And, unless some sanctions are added to the Prompt Payment Code for failure to comply, it seems unlikely this balance will be redressed any time soon.

If your company is struggling to get paid and your cash-flow is suffering then call us to see how we can help on 08000 746 757 or email or use the live support box on the right hand bottom corner. We deal with most finance houses and can often arrange tailored finance when being declined elsewhere.