A fifth of all insolvencies are caused by cash flow problems arising from late payment of invoices, according to R3, the Association of Business Recovery Professionals.
In a survey of its members, R3 found that almost half (47%) had dealt in the past year with an instance of corporate insolvency in which late payment was a major or primary factor.
Nearly three fifths (59%) ranked the construction sector as the worst culprit for late payment, wholesale and retail sectors were listed by just 5% each, and 3% blamed hotels and restaurants, the public sector, and manufacturers.
Liz Bingham, president of R3, said: “The late payment problem can have significant knock-on effects within the economy.
“The failure of one company can lead to even more unpaid bills and financial problems for others.”
She stressed that, no matter how good its business model, any company is only profitable once it receives payment for the goods or services provided – making late payment a threat that should be taken “very seriously indeed”.
Referring to the construction sector, Ms Bingham pointed out that there is an apparent link between the high number of practitioners citing construction as the worst offender for late payment, and the high rate of corporate insolvency seen in the sector.
“A high number of insolvencies and a late payment problem aren’t a coincidence,” she said. “Action on late payment would result in a healthier construction sector.”