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How late a payment culture adversely affects SMEs

One of the biggest problems faced by UK SMEs is the culture of late payment that is endemic in our business world. Not only are late payments undermining the growth opportunities for small businesses, but it’s also affecting the value that they could bring to the UK’s economy.

Late payment from customers is a problem that has been around for many years, and unfortunately research shows that it’s still far from being eradicated. It is estimated that 62% of invoices issued by SMEs in the UK in 2017 were paid late. This equates to a figure of £21 billion and was up from 60% recorded in 2016.

Cash is king

Cashflow is all important, but particularly for small and medium sized enterprises. Without it, even the most innovative and exciting business can fail if they don’t receive the payments they’re owed. Without a steady flow of ready cash to deal with unexpected expenses, businesses can quickly go under. And one of the most important aspects of maintaining workable cashflow is being paid on time.

It’s no surprise that SMEs are at their most vulnerable when they are just starting out, and too many missed or late payments can scupper their chances before they even get started.

The average value of the invoices that went unpaid, according to the survey mentioned earlier, was £51,826. A third of invoices settled late took longer than a fortnight from the cut off date agreed, with some taking up to six months to be paid.

SMEs are most vulnerable

The Federation of Small Businesses (FSB) published a report in 2016 that cites the urgency with which the Government must tackle late payers. They found that part of the reason why there is such a problem is ‘supply chain bullying’. Payment terms for larger businesses often include ‘unfair contract terms’, which has an impact on small firms.

Late payment costs small businesses in the UK about £2.5 billion every year. Official figures from the FSB report show that a third of payments to SMEs are late, with an average payment value at £6,142. All of which means around 20% of small businesses facing cashflow problems specifically because of late payments.

Bleak as this sounds, the encouraging part is that the Government is doing something about the problem of late payments by standing up for small businesses. For example, at the end of 2017, Business Secretary Greg Clark announced a newly created role of Small Business Commissioner.

The role was introduced to ensure that fair payment practices are followed for the UK’s 5.7 million small businesses and was taken by Paul Uppal. It also offers support in resolving late payment problems with larger companies and is working to bring about substantial changes in payment practices across all business sectors.

James Turner, managing director of Turner Little Limited (turnerlittle.com) said: “There are still millions owed to small businesses in the UK across many different sectors. This is obviously a massive problem for SMEs, particularly when they’re attempting to get off the ground. It’s hoped that the Government will continue pushing back against the endemic culture of late payment, particularly from larger companies.

“Cashflow is the heart of industry, and small businesses can’t survive, grow and thrive without it. The importance of SMEs for the UK economy can’t be underestimated, particularly as we head towards leaving the EU next year. The Government needs to take more steps to support small businesses as we move forward.”

About Turner Little

Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and Offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.

Turner Little and its affiliates do not provide tax, legal or accounting advice. Material on this page has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.