Small Talk: Small businesses struggle to get paid – and too often the culprits are big businesses and councils

One in four companies is spending more than 10 hours a week chasing overdue payments

What has government inaction on the issue of late payments cost small businesses? Thanks to new research from the payments service Bacs, we now know the answer to that question: £9.4bn.

Bacs says that small and medium-sized enterprises are today owed a staggering £39.4bn in overdue bills compared with £30bn when it conducted the same research a year ago. Last year’s data prompted a government pledge of intervention to give small businesses chasing unpaid invoices greater support, but this has yet to materialise. And while we’ve been waiting, the problem has got almost 30 per cent worse.

The figures are nothing short of a scandal. Six in 10 small businesses are owed late payments and the average small business is currently owed £38,186 in overdue bills, Bacs says. One in four of these companies warns that if the amount owed was to rise above £50,000, they would be forced into bankruptcy. One in four companies is spending more than 10 hours a week chasing these payments.

It is not as if we are talking about payments that are marginally overdue – three quarters of the smaller companies in the research said that payment of their bills was typically at least a month late.

Possibly the most depressing statistic of all in the Bacs research is the figure for how much large companies are owed in late payments – just £6.7bn – less than a quarter of the debt burden their smaller rivals are facing. The implication of those numbers is stark: smaller companies are being bullied by creditors who know they can get away with paying weeks or months late because of the limited power of the firms they owe money.

So what is to be done about the late payments problem? Well, the Government has already published draft legislation that will eventually force companies to publish more information about their payment terms – the theory is that larger businesses might be shamed into speeding up. It has also promised to strengthen the Prompt Payments Code, a voluntary code of best practice which by any measure has been an abject failure.

However, this action plan is far from ambitious – particularly for a government that has vowed to battle for small business and to encourage entrepreneurship. Why not make the code statutory, as well as strengthening it with financial penalties? Why not do more to enforce the EU’s late payments directive?

Moreover, the Government has a hugely powerful tool at its disposal, in the form of its status as the UK’s biggest procurer of goods and services. There is nothing to stop it barring companies from tendering for public sector contracts if they refuse to sign up to the Prompt Payments Code, or if they fall foul of its requirements. Too often, though, the late payments that small companies are owed turn out to be public sector debt. Local authorities are particularly probe to a failure to pay on time. Now that the recovery has been established, the figures should be heading back downwards. Instead, recalcitrant bill payers are behaving more badly than ever.

US software listing is a coup for Aim

The Alternative Investment Market has no shortage of foreign listings, but the successful IPO on Friday of ClearStar represented something of a coup for London’s junior stock exchange: it was the first flotation on Aim this year of a US business. That the company chose Aim for its listing, rather than one of the many US exchanges that cater for smaller businesses, represents a success for the market.

Valued at £20m, ClearStar is a software specialist that works with companies recruiting staff, enabling them to access background check information much more quickly. Existing clients include Toyota, IBM and FedEx and the firm had sales last year of £4.6m, up by more than 50 per cent on 2012.

The Aim listing has seen ClearStar attract a number of prominent British fund managers to its shareholder base, including Standard Life, Artemis and River & Mercantile, as well as the small-cap specialist Hargreave Hale.

NZ miner decides London is the place

The New Zealand resources business Chatham Rock Phosphate is to list its shares on Aim after abandoning plans for a listing on the Toronto stock exchange. The company, which already has a listing on New Zealand’s junior NZX, will publish full details of its Aim admission plans later this month.

The company said that while the wide range of fertiliser and mining businesses listed on Aim’s Canadian rival had initially attracted it to Toronto, depressed share price valuations there had changed its mind. It described the cost of listing in London instead as “significant” but said it expected to be able to access capital not available elsewhere.

Chatham Rock has permits to mine phosphate in several sites in New Zealand and is applying for further licenses. The material is a key ingredient in many fertilisers, but is currently almost entirely imported into the country.

Small Business Person of the Week: Patrick Van der Vorst, Founder, Value My Stuff

“We launched the business in 2009 with the help of investment from two of the Dragon’s Den panellists – the pitch was based on the 13 years I had spent running the furniture department at Sotheby’s, where I’d come to the conclusion that many people felt intimidated by the big auction houses but didn’t know where else to get an independent valuation of their goods.

“That’s where we felt there was a gap in the market for Value My Stuff; it’s an online service – people simply have to upload a picture of what they want valuing, plus any history of the item they have and details of how they acquired it. Then one of our team of 62 experts, of whom 58 used to work at Sotheby’s or Christie’s, supplies a valuation. For that service, we charge a £7.50 fee, irrespective of how much we think the item is worth.

“The service has been phenomenally popular – we have 400,000 people registered on the site and we’ve valued more than 500,000 items.

“Stripping out the most expensive items, which skew the figures, the average item was worth £356, but we’ve had some amazing finds, including a Monet painting valued at up to £3m.

“In March we launched Auction My Stuff. It’s an eBay type platform, but where everything for sale has been vetted by us. Sales have grown quickly – last year, our turnover reached £1.25m and we’re on target to hit £2.5m in 2014.”

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