Government moves to help make sure more small businesses get their invoices paid on time have been welcomed by the North East chair of insolvency and restructuring trade body R3.
Alexandra Withers was speaking after the launch of a consultation on giving greater powers to the Office of the Small Business Commissioner to support SMEs in resolving their late payment problems.
And she is advising North East businesses to be on the lookout for their invoices being settled later than usual, and/or outside the agreed period, as this can be one of the clearest indications of potential business distress and could potentially lead to them facing financial problems of their own in turn.
Figures from the Department for Business, Energy & Industrial Strategy suggest that £23.4 billion worth of late invoices is currently owed to small firms across Britain, while according to the Federation of Small Businesses, around 50,000 SMEs close each year due to late payment.
Alexandra Withers, who is an associate solicitor in the insolvency department of Short Richardson & Forth Solicitors in Newcastle, says: “Late payment of invoices, whether deliberate or otherwise, is one of the biggest factors in North East businesses getting into financial trouble, and while a good deal of progress has been made in toughening the rules around late payment in recent years, there’s still much more to be done.
“When a company is not paid in advance for goods or services, it essentially acts as a lender for its clients, but it does not have the protection that a secured lender receives, and can set itself up for cashflow problems if payments don’t materialise as expected.
“This puts unnecessary strain on the finances of businesses, and can stop them investing in new services, taking on new commercial opportunities, or even having enough cash in the bank to cover their day-to-day costs, which can threaten their very viability.
“With the technologies to which all businesses have access, there is no legitimate reason why straightforward invoices can’t be paid within the allotted time period, if not immediately on receipt, and we strongly welcome any moves that will help ensure more businesses meet their responsibility to pay what they owe on time and in full.”
The new powers being proposed for the Small Business Commissioner include the ability to order businesses to pay in good time and issue fines if they do not, to compel companies to share information on how they manage their invoice systems, and the power to launch investigations into businesses where bad payment practices are suspected.
Alexandra Withers continues: “Finding that invoice payments are taking longer to come through should be a real warning sign to North East business owners – while it can potentially be difficult or sensitive for them to investigate exactly what’s happening within much larger client companies, not taking such steps could create bigger problems further down the road.
“The ‘domino effect’ of one struggling business affecting the fortunes of many others is a regular situation seen by insolvency practitioners working with distressed companies, especially when an SME has become over-reliant on the work it does for a single large client.
“Directors should be acting quickly to get qualified advice as soon as they become aware of any potential problems arising, so they retain the widest possible range of options for safeguarding their own operations if their fears turn out to be well-founded.”