The government may be forced to intervene and introduce a hardened regulatory framework after it was revealed that small companies are reluctant to enforce the very law that was put in place to protect them.
Research by Bacs, the organisation owned by leading banks and building societies, shows that 80% of small and medium sized companies are failing to exercise their right to use late payment legislation, which came into force almost ten years ago.
This is despite the fact that the average amount owed to a small firm at any time is put at £30,000 and an estimated 17 days per year are lost with staff members chasing invoices – one in five small and mid-sized firms now hires a dedicated resource to fulfil this tedious task.
The Bacs study shows that companies in the South East and Greater London areas are owed the most – £42,000 and £51,000 respectively – whereas companies in the North East are only estimated to be owed £12,000 on average at any time.
The consequences of outstanding invoices can prove critical for cash-sensitive businesses, or even fatal – almost a third of those questioned claimed they’d go bust when faced with an amount owing of just £20,000.
© Crimson Business Ltd. 2008
