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Small firms caught in the late payment trap

New research has found that SME manufacturers are forced to wait almost twice as long as larger rivals for invoices to be paid.

That gap has actually widened in the past year as the largest manufacturers are now getting paid quicker than they were a year ago, while small businesses still face an average wait of 13 weeks. The smallest manufacturers - those with a turnover of less than £1m - face average payment waiting times of 14 weeks.

These are the findings of the latest research by the Asset Based Finance Association (ABFA). Its survey shows that SME manufacturers waited an average of 67 days for invoices to be paid in 2015 whereas the largest manufacturing businesses, those with a turnover over £500m, waited an average of 38 days.

In fact, the largest manufacturers saw their average wait reduce by 9%, down from 42 days in the previous year. In addition, the ABFA found that it has become even more common for large businesses to seek to impose extended payment terms in contracts with their SME suppliers.

Poor payment practices, it says, have become "increasingly ingrained in business practice since the credit crunch".

"Unfortunately, for many SMEs in the manufacturing industry, waiting more than two months to be paid is now a normal state of affairs," said Jeff Longhurst, ABFA Chief Executive.
"During the recession some businesses looked to increase their payment terms in order to give themselves breathing space in the tough economic climate. Unfortunately, in many sectors there's been a cultural shift and delaying payment to suppliers is now common practice. Larger businesses need to treat their smaller suppliers more fairly."

Late payment and extended terms are "deep-rooted issues in the manufacturing industry" said Longhurst; and they "have a significant impact on the UK's competiveness and ability to attract further investment to the sector."

Meanwhile, more and more small firms are using invoice finance to mitigate against the impact of late payment and extended payment terms, according to the ABFA. Invoice finance allows businesses to receive payment up front for their unpaid invoices.

The ABFA says that the overall amount of funding provided to businesses through asset based finance - of which 80% is invoice finance - rose by £260 million in the past year to stand at £19.7 billion at end of December 2015.

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