Billions of pounds are caught up in the economy and could be freed if invoice payments were handled more efficiently, it has been claimed.
The research, conducted by document solutions provider Formscan, found that the majority of this £64bn lies ‘frozen’ in small firms’ accounts as invoices remain unpaid.
Chris Haden, managing director of Formscan, warned that delayed payments of invoices could lead small businesses to failure. He said: “In the UK, the reality is that legal pressure to make timely payments of invoices has been largely toothless. But in the current financial climate, there has never been more need to find other cash sources and late payment surely must be a priority.”
The research found that, on average large businesses take 50 days to pay outstanding invoices, while small to medium sized businesses have a DSO of up to 70 days.
Late payments can lead to borrowing within businesses, but with the recent ‘credit crunch’ many small firms are finding it more difficult to obtain the money they require, Formscan said. Therefore businesses are feeling the effects of both this and late payments, which sometimes ends in business failure.
Haden believes that a more systematic approach to handing invoices is required. He added: “A large part of the effectiveness of AR/AP workflows concerns the underlying documentary evidence, especially for smaller firms trying to improve their payment record from larger customers.
“Key improvements likely to encourage more timely invoice payment are focused on providing documentary evidence of product or service quality, delivery, receipt and authorisation in the supply chain, simultaneously with invoice presentment.”
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