A financial expert has urged small businesses to be tougher when it comes to chasing unpaid bills – or face the risk of bankruptcy.
Figures released last summer, compiled from data collected by BACS, showed that small and medium-sized enterprises are owed a staggering £39.4bn in late payments.
That rocketed from £30bn the previous year, and a similarly astronomical figure is expected later this year when the new figures are revealed.
Bridget Holmstrom set up BH Financial Tuition after 17 years working with some of the biggest names in the international hotel sector, and now works with SMEs across the Tees Valley to offer training and help to understand business finance.
Bridget, who also runs workshops and mentoring sessions to help clients deal with their cashflow, says smaller firms need to toughen up when it comes to collecting what they are owed.
She said: “All businesses should have a contingency amount, a pot of money to cover that unexpected bill or demand.
“But that pot can often be swallowed up if there is an extended wait for monies to be paid.
“Construction is a particular problem area in paying bills, you hear a lot about 90 days being given for a payment to be made, but often that time period can be as long as 120 days.
“That is a long time to wait for a small business to be reimbursed, and that is why we hear of so many firms going under because their cashflow hasn’t been managed.
“In my view, such a long wait for payment is grossly unfair for SMEs.”
According to the BACs research, six out of 10 small businesses are owed late payments and the average small business is currently owed £38,186 in overdue bills.
One in four of these companies warn that if the amount owed was to rise above £50,000, they would be forced into bankruptcy.
The problem is also costly when it comes to time, with up to 10 hours a week being spent by businesses chasing unpaid bills.
Bridget, who runs her firm from the Evans Business Centre in Middlesbrough, is also on the committee of the Teesside branch of the Federation of Small Businesses and says plenty of advice is available for any companies struggling to chase payments.
“A lot of business is often done in good faith, but when it comes to the point when a company is struggling to manage as a result of bills not being paid then it causes significan cashflow problems.
“If payment is made within the agreed time that is good. But the problems arise when deadlines aren’t met and the extended time isn’t accounted for in the original cashflow plan.”