The average small business is owed £30,000 at any one time and the total amount outstanding rose by £2.6bn to £18.6bn over the past year, research by BACS Payment Services reveals.
Failing to keep adequate cashflow coming into a business could be fatal. Almost 30% of those small businesses questioned admitted they would be unable to survive being even £20,000 in the red, the BACS research claimed.
"By not paying on time, larger companies and public authorities could force small companies in the supply chain out of business," warned the national chairman of the Federation of Small Businesses John Wright. "If this happens, it will have an adverse effect on companies and organisations of all sizes."
Credit-checking company e-bcm is also warning that small businesses have a responsibility to pay their own suppliers on time and to chase up money they are owed to safeguard both their own livelihood and that of their partners.
"If we do move into a serious slowdown, we are likely to see the number of debtor days growing and more firms shutting up shop," said Dennis Scott, the company's commercial director. "The situation could get much worse before it gets better."
The FSB is also reminding small businesses about late payment legislation, which allows them to charge interest and penalties for outstanding debts. But Wright conceded this may be impractical for many small firms.
"Most small businesses will be reluctant to exercise their right to claim the late payment fee for fear of putting the relationship with their client at risk," he said.
Companies can find more information about late payment legislation, including how to calculate any interest outstanding, at www.payontime.co.uk
