The impact of late payments on SMEs

If media coverage has made anything alarmingly clear in recent months, it is that Brexit uncertainty is having a knock-on effect for SMEs and larger UK businesses. However, this is not the only ongoing issue they are having to face in 2019.

Duff & Phelps has highlighted their concerns that the late payment culture is resulting in further low productivity and financial instability.

In their statement, the firm reported: “Our concerns follow recent research by Bacs Payment Schemes, which claimed that small businesses are facing a collective bill of £6.7bn per annum in outstanding payments owed by other companies—up from £2.6bn in 2017.”

“Cash flow is the lifeblood of a business, and late payments add to the daily stress and worry that many small business owners already have.”

Paul Williams, managing director at Duff & Phelps, continued: “Late payments are a financial challenge for many SMEs. Delays in payments can lead to cashflow problems for small businesses, and consequently difficulties in paying their own creditors on time.”

The managing director went on to cite the fact that around 50,000 businesses fail each year due to late payments. This amounts to a £2.5bn shortfall for the UK economy to withstand.

“The average value of each late payment now stands at £6,142,” Williams said. Beyond this, a lack of cashflow “can have a negative impact on supply chains, staff, and, ultimately, customers.”

“Organisations facing such financial uncertainty should promptly seek professional advice, but more can be done to avoid businesses reaching this situation in the first place.”

Late payments also impact a business’s ability to grow as they become “preoccupied with managing short-term cash problems”, thus taking time and resources away from any long-term plans for growth they may have.

“Small businesses preoccupied with cash flow problems are also less likely to invest in company resources or staff, further limiting their opportunities to grow,” Williams pointed out.

The government currently promotes the voluntary Prompt Payment Code (PPC). The aim of this is to promote good practice. Nonetheless, the struggle is continuing as SMEs productivity levels suffer.

“Cash flow is the lifeblood of a business, and late payments add to the daily stress and worry that many small business owners already have,” the Duff & Phelps managing director said.

“SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services, and adding value to the customer experience, rather than chasing outstanding payments.”

Williams said: “Added to that, businesses also end up wasting hours of unproductive time chasing payments. In this modern era of technology, which is designed to enable business agility, late payments are particularly galling, as there are no excuses.

“Paying companies late shouldn’t be the accepted norm. Organisations facing such financial uncertainty should promptly seek professional advice, but more can be done to avoid businesses reaching this situation in the first place.”

He concluded: “SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services, and adding value to the customer experience, rather than chasing outstanding payments.”