Over a third of London's small to medium-sized enterprises (SMEs) may be driven out of business by late payments in less than six months, according to a survey by the London Society of Chartered Accountant's Turnaround Finance Group.
The survey of 1,050 businesses with up to 50 staff, showed 34% are at risk of going bankrupt either because of bad debt or because of payment being withheld.
Although most companies in the survey said they still expect payment within 30 days, average payment has risen to 90 days for 27% of businesses, with five per cent of enterprises experiencing delays of up to 190 days.
Although the 1998 Late Payment Act allows small firms to charge each other automatic interest at eight per cent above base rate, 77% of SMEs said they are reluctant to use it as they fear losing contracts if they chase debts too hard.
Doug MacDonald, chairman of the LSCA’s Turnaround Finance Group, said: ‘Cashflow is the basic life-blood of a business. Managing debtor collections and having an effective accounts system is crucial to the viability of any business, large or small.’
And MacDonald suggested ways of reducing debts piling up. ‘Companies should undertake credit checks on potentially large contracts with customers before beginning a business relationship,’ he said.
‘They should do everything possible to help foster good customer relations, and consider using specialist debtor financiers such as factors to speed up payment.’
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