Private sector suppliers, including limited company contractors, are focusing increasingly on their cashflow and threatening clients with legal action if they do not settle their invoices in a timely manner.

Lovetts, a debt recovery firm, reported recently that the average timespan from invoice date to ‘letter before action’ is now 68 days; down from 72. Suppliers’ willingness to wait for payment has now been decreasing for the last three consecutive quarters.

Lovetts’ MD, Charles Wilson, said that suppliers have adopted an attitude of debt is debt and it makes no difference who the customer is. He suggests that last year’s forbearance has now run its course and suppliers are getting tough on any late payers.

He went on to explain that last year, businesses gave customers much more leeway before threatening legal action in order to maintain a good working relationship.

However, companies must make sure they carry out their threats and pursue a legal claim. If they don’t follow up, they will be accused of crying wolf.

80% of businesses that send letters warning debtors of recovery action do secure payment, so they are an effective deterrent. But with debts to SMEs totalling a record £33.6 billion, suppliers must demonstrate that they mean business when it comes to chasing overdue invoices.

Bad debts are not the only problem facing UK SMEs at the moment.

Global recruiter Hays conducted research that discovered that 55% of jobseekers think they could get better benefits working for a larger organisation, and 52% are concerned that smaller firms lack stability.

Small businesses need to attract skilled and talents personnel in order to remain competitive and employers should take the time to explain the direction the business is heading and future growth opportunities to potential recruits, Hays director Charles Logan said.

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London and the South East of England top the late payments league, according to the latest study from Bacs.

Nearly 400,000 UK enterprises suffer because of delayed payments and the average owed to one company at any one time is £27,000. Although more firms in the south of England are owed money, they do not have as much debt outstanding as companies in the Midlands who are owed up to £38,000.

Large corporations are responsible for the lion’s share of the debt. They owe £24 billion to British SMEs and in some cases invoice settlement is up to 52 days overdue. The public sector and not-for-profit organisations on the other hand improved their payment times in the last half of 2010.

33% of SMEs say big companies are behind overdue bill payments and those operating in the manufacturing sector are the most likely victims. 53% of UK SMEs have suffered late payment, up 8 percentage points from June last year. When they do eventually receive settlement it’s an average 39 days over the agreed payment terms and this rise rises to nearly 50 days overdue in the distribution sector.

The burden of chasing overdue bills is having an adverse impact on smaller businesses. They now need to devote half a day every week to chase payment, equating to over 158 million man hours the British economy loses just to pursuing overdue debts.

At the same time, the number of firms using Invoice Financing to help improve cashflow rose by 16% in the year ending April 2011, according to the Royal Bank of Scotland.

Mike Hutchinson, Bacs’ head of marketing, urges more SMEs to use automated payments if possible so they can better manage funds which are under their control.

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Rather than reversing the trend for late payments, a new directive from the EU could actually make matters worse, according to the FPB.

Many public sector organisations currently have a ten-day settlement target and the forum is concerned that the implementation of a standard 30 day period could cause those bodies to abandon speedy settlement. For example, recent FPB research shows that the NHS pays contractors within 10 days in 90% of cases. On the other hand, some organisations are unable to settle any invoices in 10 days and some struggle to pay 20% within 30 days.

Phil Orford, the chief executive of the FPB, agreed that the Late Payments Directive should help tackle the problem small businesses and freelancers are facing due to late settlement of invoices, which is currently thought to be costing the UK economy £24 billion.

However, he also pointed out that although not all public sector bodies have adopted the ten day payment rule, abandoning it would be a step backwards and could encourage those who currently pay up quickly to increase the waiting period for settlement.

Late payment of timesheets has become a real problem not only in the UK but across Europe as a whole. In Italy, the average public sector settlement time is a huge 100 days whilst private sector companies take an average of 66 days to pay their debts.

The FPB has long been campaigning for legislation to cope with the problem of late payment and the Prompt Payment Code was introduced to help combat the problem. However, signing up is optional and not many large businesses have pledged to settle in full and on time. And many small businesses remain reluctant to take on late payers through fear of losing the contract.

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The latest public body to come under fire for late payment of invoices is the police force.

Despite repeated directives from the government, suppliers to some of the UK’s police forces have to wait over 2 months for settlement at a time when some SMEs are still facing insolvency threats, according to the FPB.

The best police forces settle their invoices within days but there is a huge gulf between them and the worst performers. The FPB say that some manage to settle over 75% of invoices within 10 days and virtually all are paid within 30 days. On the other hand, some forces settle less than 1% of their invoices within 10 days and more than 50% are still outstanding after 30 days.

Meanwhile it has been revealed that SMEs are now accepting excuses for late payment rather than chasing customers with outstanding debts.

A survey conducted by positivecollections.co.uk found that almost three quarters of SMEs accept late payment excuses. 10% of businesses don’t like chasing debts at all in case they lose business in the future and 17% would like to chase up debtors but think it is too expensive to start legal action.

Micro businesses fare reasonably well in the debt recovery stakes with 45% saying they always receive payment on time.

Although there has been an increasing trend towards late payment since the recession took hold, there are major concerns that SMEs cannot afford to suffer this kind of disruption to their cash flow and some may be forced out of business.

Whilst there will always be instances where late payments are unavoidable, this should never be accepted as the norm and businesses and contractors should try and implement measures to keep their credit control in good shape.

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