Late payments can be debilitating to any small business with over 50k ceasing trade every year due to this issue. SME’s are chasing £61bn in late payments, a 20% increase compared to this time last year.
As the essence of the UK’s economy – around six million UK SMEs turnover an estimated at £2.2 trillion annually, tackling the issue of late payments will be vital in enabling small businesses to reach their full productive potential and improve not only the growth of their enterprise but the growth of the UK economy.
The full impact of late payments
The European Commission found that in the UK, 30 per cent of businesses indicated that late payment had links to subsequent redundancies, compared to 35 per cent of businesses in Germany; 28 per cent in Spain and 25 per cent in France. Based on the UK’s average salary of £29,600, that unpaid money could pay for businesses to hire more than two million people.
Late payments force many affected businesses to focus on day-to-day activities rather than longer-term plans for growth and expansion. As a result, the longer companies wait for payment, the lower the level of investment they make.
A recent exclusive survey with YouGov to better understand the situation among business-to-business SMEs across the UK, surveying a sample of 500 businesses with up to 49 employees, 68 percent confirmed they regularly experience late payments. And 62 per cent spend time each week chasing overdue invoices. That equates to four million businesses (and 1.7 million VAT-registered businesses) struggling to get paid for products and services they’ve delivered. The time, energy and resources drain that this causes is significant, and the effort could be spent instead growing the business. And there’s no doubt that the pandemic has made this dire situation worse, with increased levels of debt, reduced cashflows, and some larger organisations looking to retain cash themselves – even freezing payments for some small suppliers.
It is evident that SME’s must invest in more efficient invoicing processes, such as cloud accounting and automated invoice chasing. Consistent late payers must also appreciate the risk to their operations. Should their suppliers halt trading, as a result, this can present severe challenges in sourcing products and services for their own business, impeding their performance. Ultimately, it is critical to acknowledge that while larger enterprises have the resources to absorb debt, SMEs don’t, and they become the hardest hit as a result.
With 2022 a key year to recover and build back stronger, tackling the endemic issue of late payments should be a business priority. Legislation alone cannot fix it.
How long do you wait for payment? Our own research shows that once a debt passes 90 days overdue, you are 50% less likely to be paid.
That’s where our No Collection, No Commission business debt recovery service can help your business survive and strive.
Whether you have one difficult customer refusing to pay you or a large number of unpaid invoices consuming your time, speak to us, and let’s see if we can help you.