Almost one in two small business owners have experienced late client payments in the past 12 months, according to a new report, with a quarter facing serious cashflow shortages as a result.
The latest Bibby Small Business Barometer, conducted by Bibby Financial Services at the end of June, is based on a survey of more than 200 small businesses, excluding retail.
The survey reveals almost one in two respondents have experienced overdue customer payments in the past 12 months, while 42% feel their customers are making excuses for slow payments.
As a result of late payments, 25% of the businesses surveyed experienced serious cashflow shortages in the past 12 months.
Greg Charlwood, managing director of Bibby Finance Services, says small businesses are struggling to meet liabilities on time, while many are struggling with non-payment.
According to the survey, more than half of small businesses offer early settlement discounts to encourage prompt payment. Of those that do, discounts are typically between 1% and 4%.
Despite the incentive to pay on time, 30% of those that offer early settlement discounts find them to be ineffective in encouraging prompt payment.
The severity of the situation is having a serious impact on the morale of small business owners, many of whom are stressed about late payments and the impact it will have on their business.
The survey found 52% of small businesses that deal with big companies and government clients are frustrated with slow payments.
“Thirty-eight percent of small businesses are expecting the length of time they must wait to be paid to increase in the future in the coming quarter, which will no doubt place considerable pressure on cashflow management,” Charlwood says.
In addition to slow payment terms, other key challenges identified by small businesses include rising interest rates (30%) and reduced consumer spending (30%).
Increased staff wages and increasing fuel costs are also a concern. Meanwhile, half of the businesses surveyed said cashflow is more difficult to manage now than it was 12 months ago.
The findings are in line with Dun & Bradstreet’s Trade Payments Analysis for the June quarter, which reveals the number of “severely delinquent” payments (90 days or more overdue) jumped by almost 20%, compared with the June quarter in 2010.
According to David Huey, of trade credit insurer Atradius, the problem is only going to get worse.
“In the post-GFC environment, many small businesses are comfortable to expand their business… [They offer] competitive terms of credit to get ahead,” he says.
“Many prefer to trust their own judgement or take out protection sporadically.”
But according to Huey, comfort is no excuse for complacency, especially with small businesses, where a single debt default could be catastrophic.
“If only one or two customers fail to pay, the impact on a SME can be disproportionately high as cashflow is severely reduced, and a direct impact is felt immediately,” he says.