SME waiting time for late payments doubles

The time UK SMEs spent waiting for late payments has nearly doubled over the past 12 months, according to a report by MarketFinance.

In 2018, the average late payment was 12 days behind schedule, but in 2019 that increased to 23 days, the report said.

In addition, the report found that around £34 billion are owed in late payments to UK SMEs, an average of £34,286 per business. There is however some good news, that while the late payment period has gone up, there was a reduction in the number of late payments. 39% of invoice payments were late this year compared to 43% in 2018.

“It’s great to see that fewer invoices were paid late in 2019 but worryingly, those that were paid late took twice as long as in 2018,” said External Relations Director, Bilal Mahmood at MarketFinance.

“Late payment practices harm business cash flow, hampers investment and, in extreme cases, can risk business solvency. Separate research we’ve conducted highlighted that 87% of businesses are prevented from taking on more orders because of the cashflow constraint owing to late payments.

“Overall it seems who you are doing business with and where they are based is important to know for a small business if they need to forecast cashflow,” he added.

Not all debtors are equal

On a per sector basis, professional and legal services suffered the most late payments, with seven out of ten payments deemed late, this more than doubled the previous year’s late payment ratio of three in ten.

The Manufacturing and retail sectors were also plagued with late payments, at a rate of 57% and 49% of all payments respectively. The sector that saw the most improvement this year were utilities and energy, where late payments dropped from two-thirds to only one-third of all payments.

For firms dealing with international payments, the study also looked at invoices going to 47 countries. Chinese firms were the most punctual at solving their late payments, they were on average settled in 10 days. Germans firms with late payments took an average of 32 days and American firms were the tardiest, taking an extra 51 days to settle accounts.

An Intuit QuickBooks report found UK SMEs on average spend more than a week chasing after late payments amounting to over 56 million work hours a year. Similarly, the Federation of Self-Employed and Small Businesses estimate that 37% of SMEs run into cash flow problems because of late payments.

Mahmood added that late payments are a perennial problem that SMEs suffer from and argued that for many, it’s an inevitable cost of doing business.

“SMEs owners have come to expect long payment terms, but late payments are inexcusable. For every day an invoice is late, it’s more time spent chasing payment. This means less time for business owners to focus on growing their business, coming up with innovative ideas and hiring more people, or just paying their staff and bills. Things need to change quickly,” Mahmood said.

“We want the UK to be the best place in the world to start and grow a business, but the UK’s small-to-medium-sized businesses are hampered by overdue payments. Such unfair payment practices impact a business’ ability to invest in growth and have no place in an economy that works for everyone.”