Unpaid invoices

SMEs owed shocking £62.5bn in unpaid invoices: biggest problem and biggest asset

SMEs do not have to accept late payment by default. They can both address this problem with the latest technology and also use late payments to fund their business.

The Problem

British SMEs are owed £67bn in unpaid invoices, with manufacturing and construction companies the biggest victims.

Research by the Asset Based Finance Association (ABFA) said the huge total is up eight per cent from £62.5bn twelve months ago and 36 per cent higher than the £49.5bn in 2011 – revealing a worsening in the problem of overdue payments and extended payment times.

It builds on previous studies showing that SMEs are now waiting an average of 72 days for payment of invoices, up from 61 days at the height of the recession in 2009.

ABFA warned that the £67.4bn figure in unpaid invoices is likely to be a conservative estimate of the true value of unpaid invoices, as it only reflects the invoices of 180,000 SMEs that report detailed accounts. The true total value is likely to be significantly larger, it added.

Manufacturing and construction are among the sectors where SMEs have the highest value of unpaid invoices.

The ABFA said that outstanding invoices from SMEs in the construction sector currently stand at £7bn amounting to 16 per cent of annual turnover in the sector.

Small and medium-sized manufacturing businesses are owed £13.4bn by customers, which represents 17 per cent of their annual turnover. Across SMEs as a whole, unpaid invoices amount to 14 per cent of annual turnover.

Separate research by the ABFA recently showed that construction businesses wait an average of 107 days for payment of invoices, while manufacturers must wait 61 days on average.

The Solution

An unpaid invoice is both a problem and an asset to the business. After all it is a promise to pay.

Chasing unpaid invoices is both time consuming and costly in terms of people time. That assumes that you have all the visibility in the first place to understand what is overdue and who needs chasing and when.

  1. We would recommend the first port of call for any business is to make sure that credit control happens in an effective and efficient manner. How do you do this when often SME’s can’t afford and don’t have time to perform credit control themselves? Well, with the digital technology can automate up to 90% of this process and has been proven to reduce debtor days by on average a third without costing the earth. It is like having a full time credit controller without the salary and overhead but with nearly all the benefits. Contact us for details on how we can provide the technology to sharpen up your credit control.
  2. After good quality credit control we would encourage businesses not to view unpaid invoices as an unavoidable drag on cashflow, but as one of the most valuable assets which can be used to unlock funding.

The key here is to look at asset finance and invoices in particular as part of an overall business finance solution rather than the silver bullet.

Members of the ABFA currently provide £9bn in finance to SMEs against the value of invoices, and at any one time will be providing £19.3bn overall in asset based finance to businesses. So it is a really common solution but it requires careful thought around the right mechanism that is right for your business. Factoring vs. discounting, the right provider, fee’s and charges are all things that need to be considered carefully. Contact us for details on how we can guide you through the process to stop the drag and start the growth.

We agree with Jeff Longhurst, chief executive of the ABFA, when he commented:

“The scale of unpaid invoices to Britain’s SMEs has become enormous, but there is no reason for it to become a barrier to investment and growth. Businesses need to recognise that their unpaid invoices are an asset. In many cases, they are the most valuable asset an SME has, and they can be the key to unlocking critical and affordable funding. Invoice finance is playing a bigger role than ever in funding British businesses’ growth, and it is now an established part of the funding mix for a huge number of SMEs. But it can also help many more businesses.”

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