Firms are advised to protect issued invoices and safeguard cash flow with credit insurance

Recent research from Bacs, the organisation behind Direct Debit, has revealed that UK SMEs are losing more than 158 million man hours a year chasing late payments. This equates to an average of half a day every week.

Chasing invoices can be a lengthy process, particularly for small businesses which do not have a dedicated accounts department. Spending over three hours each week chasing payment settlements can affect business’ output and restrict cash flow, with firms’ own bills potentially becoming delayed as a result.

The Bacs research also showed that over half (53 per cent) of UK SMEs have experienced late payment, which is up from 45 per cent in June 2010.

The average amount owed to these businesses is £27,000 according to Bacs, which is paid an average of 39 days after the agreed payment terms. This figure varies across sectors, with distribution companies waiting an average of 50 days for outstanding bills.

Businesses wishing to minimise the risk of knock-on effects on cash flow as a result of late payments are advised to employ a credit insurance product to safeguard against delayed invoices and potential customer insolvencies.

Martin Walmsley, head of debtor insurance at Lloyds TSB Commercial Finance, said: “This recent research from Bacs further highlights the problems facing SMEs regarding late payments.

“It can be difficult for a company which only has a handful of employees to keep on top of outstanding invoices. This can mean important growth strategies are neglected, as time is spent on the phone or drafting letters to debtors instead.

“Ensuring cash flow is not adversely affected by late payments, a credit insurance policy offers peace of mind for growing businesses which are concerned about the impact of overdue bills.

“For SMEs which are worried they are spending too much time chasing invoices, factoring may also be worth considering. A form of invoice finance, the facility has an in-built credit management provision which is ideal for smaller firms that do not have a dedicated accounts department.”