VIABLE and successful businesses are being driven towards bankruptcy because of late payments, says an industry expert.
Luisa Grey, a director with Direct Debit processing company Eazipay Ltd, said: “Many small companies are being kept waiting for longer than their stated trading terms before their invoices are paid.
“In some instances, the delay in receiving payment can be as many as 41 days longer than their normal payment terms.
“In the current economic climate, maintaining control over cash flow is essential to a business’ survival and when companies are starved of cash, regardless of how successful they are, disaster looms.”
Delayed payments very quickly create a vicious circle, said Luisa.
“If one company doesn’t pay another on time, then a non-payment domino effect is created where business after business is caught in a cash flow trap,” she said.
“Cash flow problems are often cited by companies as the main reason why they delay paying their suppliers, but those problems would be eased if the non-payment cycle were to be broken by companies paying each other on time.”
Industry figures show that almost a million small to medium-sized businesses have been hit by late payments – with a staggering £24bn being owed in late payments at any one time.
Said Luisa: “The problem isn’t confined to small companies not paying other small companies. Large companies and even government departments are equally guilty of sitting on their cash rather than paying bills on time.”
With cheques due to be phased out in 2018, companies should be actively seeking alternative payment methods, said Luisa.
Making payment through the established Bacs system would break the late payments cycle at a stroke, she claimed.
“It is a very simple process to have money that you are owed paid directly into your business bank account through the Direct Debit system,” she added.
“Running a business is tough enough without the additional risks that late payments create.”