Late payments to small businesses continue to rack up

UK small businesses are being prevented from accessing £266 billion, that is rightfully theirs, because of late payments from suppliers, according to new research carried out by YouGov.

The alarmingly high figure was calculated after estimating that the total annual turnover for small businesses (SMEs) in the UK is £1.8 trillion, contrasting with the Government’s calculation of £26.3 billion, and comes despite a new UK law now in action requiring large firms to report their payment terms and publish them via an online government service. Failure to report will be considered a criminal offence.

Decision makers for 1,031 small business took part in the survey, commissioned by Crossflow Payments, revealing that 15% of all small firm turnover was subject to late payment in 2016, with 23% of respondents declaring they don’t normally have their invoices settled on time. Of these businesses, 55% indicate that this stretches on average to ten days or more beyond their payment terms.

Crossflow Payments was not the only organisation to recognise these issues, with research by the Zurich SME Risk Index in April showing 21% of the 10,000 small businesses surveyed were owed more than £25,000 and 9% were owed more than £100,000, leading to funding gaps that significantly hit their cash flow.

Tony Duggan, CEO of Crossflow Payments, said: “Delays in receiving payment promptly from customers is acting as a handbrake on businesses, preventing them from making key investment decisions for the future, and ultimately stunting growth. In 2017, it should no longer be the case that businesses face such hurdles.”

If all invoices were settled on time, 22% of those surveyed said they would increase their marketing and sales budgets, 17% said they would hire more staff, while 17% said they would increase the wages of existing employees.

However, the greatest impact of late payments was on potential job creation, with 63% of those suffering late payment saying they would use the missing working capital to expand their team, hiring up to five new staff members. This would be the equivalent to the creation of 3.4 million additional jobs, based on the estimated 5.5m small businesses in the UK.

Duggan added: “The business community must work together in order to address this issue and explore new, innovative approaches, such as the capacity of fintech, to help solve this issue, creating a win-win for business and government."

Date published 9 May 2017 | Last updated 9 May 2017