UK small businesses are spending on average more than one working week chasing after late payments.
According to a report commissioned by Intuit QuickBooks, 56.4 million hours a year were used to look for overdue and late payments. The study which looked at 500 small businesses found that 56% chased these late payments outside of their regular work hours, eating into their personal and family time.
More than one in five are chasing late payments before the start of the working day. However, when given the choice only 15% of small business owners would use the time saved on spending it with their friends and family.
Chris Evans, VP and UK Country Manager at Intuit QuickBooks said: “Cash is oxygen for small businesses and without it they cannot breathe. The combination of chasing invoices and bad payment practices means small businesses can run out of accessible cash. This has a real impact on their ability to take on new work, pay suppliers, their employees or themselves on time and can add unnecessary extra stress into their lives.”
The report estimated that the time wasted on chasing these late payments were worth £6.3 billion. On average, at any given time an SME is waiting on nine outstanding payments and 11% of these outstanding payments are more than 200 days late.
In addition, the Federation of Self-Employed and Small Businesses (FSB) said small businesses are owed an average of £6,142, with most of these debts due from larger firms. They also state that more than 37% of small businesses run into cash flow problems and 30% have needed to use an overdraft to cover costs.
An estimated 50,000 businesses could be kept open each year if all payments were made on time, which equates to £2.5 billion of economic activity.
Relief for SMEs
There has been a push to end late payments to small businesses. This past June, the government unveiled proposals to hold debtors more responsible so that they pay for goods and services rendered in a timely fashion.
These include strengthening the powers of the Small Business Commissioner to hold larger businesses accountable when they are late on payments with small businesses. Possible new powers include disclosure of payment terms and practices and could also entail imposing financial penalties or binding payment plans for businesses found to have unfair payment practices.
Another proposed approach is to have large businesses report their payment practices to a national database twice a year.
Accountancy Age conducted a podcast on the challenges that SMEs face with late payments back in September. To listen to the podcast, click here.