Small firms facing long delays on payments

Posted on 17 Jan 2012

Engineering companies with less than 50 employees reported an average collection period on payments due from clients of 76 days, with 20% reporting a wait of more than 100 days.

While the time that small firms wait is shorter than the 85 day average at large firms, but despite being lower than in previous years it is still significantly higher than the government’s desire to see bills paid within ten days.

With 17% of firms running at a loss and profit margins falling across the sector, the length of time can cause problems for small companies that often have limited cash reserves.

The report is part of the Benchmarking Lite survey from the Association for Consultancy and Engineering (ACE), which represents the interests of the engineering industry in the UK.

Nelson Ogunshakin OBE, chief executive at ACE, said that increasing financial pressures facing client companies in the public and private sectors has led to the poor periods of payment.

Mr Ogunshakin commented: “This can cause significant risks for their business as cash flow proves tight and lending conditions remain difficult.”

“We appreciate the government’s commitment on this issue through long-standing measures such as the Fair Payment Charter with maximum 28 days on payment,” he added. “However, we hope to see the principles behind this adopted more widely across the sector, if we are maintain a sustainable industry.”

Small firms also reported that their order books were significantly shorter than large firm order books in 2011. While large firms reported an average order book of 8.2 months work secured, companies with fewer than 50 staff had just 4.5 months of work already arranged.

More firms reported lower revenue than those showing an increase, by a margin of 56% falls to 44% rises. This further increases the risks faced by firms going into 2012.