Almost three-quarters of SMEs experience late payments from their customers with the technology and insurance sectors the worst hit, a report has revealed.
Ninety-three per cent of SMEs in the tech sector are not paid on time for providing goods and services, according to research from alternative funding provider Growth Lending.
Its Don’t Bank On It report also reveals that a third of tech SMEs experience late payments on a monthly basis. Ten per cent cent even face late payments on a weekly basis.
Of those tech SMEs that experience payments outside of agreed terms, 39 per cent have at least £50,000 tied up in late payments. While 21 per cent have up to £500,000 of capital unavailable as a result of unpaid invoices.
Businesses in the healthcare and property industries also regularly fall victim to late payments. Twenty-eight per cent experience monthly late payments.
Lauren Couch, managing director at Growth Lending, said: “SMEs are currently facing a cocktail of challenges, with the rising cost of doing business, geopolitical uncertainty and soaring inflation creating cash flow issues. Late payments are adding to these challenges and as we head into the Christmas period securing payment from customers is likely to become increasingly difficult.
“Businesses are also being held back from growth, unable to utilise the money tied up in unpaid invoices to invest in areas crucial to success, such as product development, hiring talent and sales and marketing. For those SMEs for whom Christmas is the biggest trading period, they are lacking capital to increase stock, hire seasonal staff and reap the benefits from higher custom.
Solutions to late payments
One in four businesses are seeking private investment to grow – more than bank loans at 22 per cent. According to Growth Lending Home, invoice finance is one solution to unlock funds tied up in a company’s debtor book.
Invoice finance enables a business to secure an advance on an outstanding invoice, or invoices, usually of between 80 and 90 per cent. However, research shows that awareness is low.
“In fact, 49 per cent of those surveyed said they were unaware of invoice finance as a form of funding,” adds Couch. “As a lender, we have a responsibility for increasing awareness of the support available and helping SMEs to successfully navigate the challenges of the current economic landscape, as well as continue on their growth journeys.”
The research suggests that many SMEs are relying on finance to stay afloat against a backdrop of rising costs, with 19 per cent seeking funding to cover increased overheads and 14 per cent citing contingency planning in the current environment.