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Over a quarter of small businesses are worried that late payment could prevent them from paying wages to staff, new research has revealed. The study, conducted by BACS Payment Schemes, found that more than one in four firms admitted that they could not pay employees if customers didn’t settle their debts for one month.

BACS said that this meant that over 80,000 businesses, employing around 3.4 million people, would be in serious trouble if they experienced late payment.

More than nine in ten small firms polled said that businesses that make late payments could doom other companies. A further 88 per cent said that late payment causes significant extra stress, with over half admitting that this strain has a negative effect on relationships with staff.

Although late payment has become so widespread that it is now an accepted part of business life, the practice sends thousands of small firms into insolvency each year. Despite laws introduced to curb the problem, such as allowing firms to seek compensation from debtors, recent studies have found that bosses were unwilling to go to court to get payment.

Michael Chambers, managing director of BACS, said that the findings are not good for British industry: "If only a small percentage of the companies concerned about late payments found themselves in a situation where they were unable to pay their staff on time, businesses would simply not be able to cope.

"The senior decision makers that participated in this research had no hesitation in linking late payments from customers with their stress levels. Consequently, a perpetual circle of negative feeling has been created, and the consequent stress leads to low staff morale, lower customer service levels and reduced respect both ways between customer and supplier," he concluded.

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