Research undertaken by challenger bank Aldermore has shown that late payments are continuing to hold back small and medium sized businesses.

Aldermore’s report confirms that, during the past year, two in every five business owners have experienced an increase in the number of customers who are late paying invoices; in the wholesale and distribution sectors, this figure rises to one in every two. 

One in five firms also said that the issue of chasing late payments has become significant and is impacting cash flow.

However, despite this growing burden, the majority of respondents (64 per cent) were unaware of the European Late Pay

ment Directive, which is due to be implemented in March 2013.

Speaking about the bank’s findings Damon Walford, Managing Director of Aldermore Invoice Finance, said: “Late payments are a continuing drain on small and medium sized business owners in the UK. It’s critically important, at a time when we’re looking for SMEs to drive the economy out of recession, that they are freed from the shackles of late payments.”

Aldermore’s research was conducted in July this year and targeted over 300 SMEs throughout the country.

The bank’s findings are supported by research recently published by BACS Payment Schemes, which confirms that more than one million UK SMEs are facing late payments with their total collective debt being almost £36.4bn. 

The average UK SME experiencing late payment now has to wait 43.4 days beyond payment terms for their invoices to be settled. 

Furthermore, business owners spend three weeks a year chasing overdue payments on average.

Damon added: “Clearly, more needs to be done to make business owners aware of solutions that can help them address these issues. The government, trade associations, business groups, advisers and others all have a role to play in raising awareness of new legislation designed to help SMEs.” 

Aldermore also pointed out that an increasing number of firms are turning to invoice discounting as an effective way to release cash tied-up in unpaid invoices. 

The latest data published by the Asset Based Finance Association (10 September 2012) confirms that the number of companies using invoice discounting has increased to more than 18,500, up from 17,300 in the same period last year. 

Speaking about this trend, Damon added: “Small businesses don’t have to rely on a current account linked to an overdraft facility to fund their day-to-day business activities. There are plenty of specialist funding schemes available such as invoice discounting, leasing and other forms of asset finance which mean that firms don’t have to be 100 per cent reliant on an overdraft or bank loan to keep their heads above water.”