Late Payments are still a major problem for UK SME’s. Isn’t it time to take a stand…?
30 Oct 2018
BFPA members may recall in a previous bulletin, Chris Buxton highlighted the negative impact that late payments are having on small businesses and indeed many of the BFPA membership. It would appear that despite new Government legislation, (upon which BFPA was instrumental in lobbying), offenders still persist in what are unethical practices.
Let’s not ‘beat about the bush’ – Micro businesses and freelancers may go out of business because of the prevailing culture of late payment. The worst offenders are often larger blue chip companies who consider their size and leverage as a reason for propagating these unethical practices.
Late payments are the scourge of the business community, especially for micro businesses that rely on steady income to keep them in the black. New research, however, reveals that only 4.7% of the businesses pay all their invoices within 30 days.
There were 5.7 million small and medium-sized businesses in the UK in 2017, making up 99% of all businesses. Yet, these businesses are facing an ongoing problem: late invoice payments. On average, 62% of small business invoices are now paid late on a regular basis.
This delayed payment has a huge impact on the finances of small businesses, putting jobs and businesses at risk.
- SME’s are owed £44.6 billion in invoice late payments
- 50,000 SME’s close each year because of late invoice payments
With 16.1 million people currently employed by SME’s, making up 60% of private sector employment in the UK this is a very real concern.
- 70% of Medium-sized SME’s rely on finance
Of those who are using debt, 68% use the money to acquire working capital or improve cash flow, rather than investing in the business.
Companies with a £36 million annual turnover now have an obligation to report to the government about their payment practices. According to research from invoicing specialists at ‘Business Expert’, only 316 out of the 6,613 businesses in the latest government report stick to 30-day payment terms. Additionally, 20% of the businesses in this list pay more than half of invoices late.
It is all too easy to look at reports on large names like Coca-Cola and think, “These large businesses don’t affect me.” However, this late payment culture is a problem for the whole of the UK. It is estimated that if SME’s were paid on time, the economy could be boosted by £2.5 billion.
One micro business owner stated, “I currently have thousands of pounds of outstanding invoices and this is having a huge impact on my ability to reinvest in my business,”
Many businesses are unable to operate in these conditions and actually leads to company failure and bankruptcy.
Another SME owner stated, “The main issues that late payment causes (is that) it’s a constant struggle to ensure there is enough money in the bank in order to pay our fixed costs, such as rent and staff. We are having to rely on our customers paying us on time to ensure that the money is in the bank to pay out on time. Some micro business owners actually go without paying themselves to make sure this is the case.”
The same owner went on to say, “The majority of our customers are very helpful and want us to succeed, but surprisingly it is the medium-sized customers who are the worst at paying- small independents almost always pay on time, as do many of the big boys!”
Many business owners and leaders experience first-hand the effects of late invoice payments and how the cogs in the wheel grind to a halt.
Someone not paying for services on time, means that they struggle to pay suppliers, and so the knock-on effect in the chain continues. As one complainant put it; “I compare it to the house-buying chain. It only takes one delay in the chain to have a huge impact from the top to the bottom.”
To date, many companies have resisted using factoring services and invoice discounting for fear of damaging important business relationships but it is often the only option left to small business owners. Another SME owner put it into clear terms; “As a business, we don’t want to be holding up the supply chain but as a small business there is very little you can do. We tried planting a money tree in the office but it didn’t grow!”
BFPA members suffering from this problem may wish to know that new Government Legislation means you can charge an 8% interest plus the Bank of England base rate on late invoices. You can also claim debt recovery from the business for the cost of a late payment.
The total one is allowed to charge depends on the sum of debt.
Suppliers can also claim for costs each time they try to recover the debt.
Just go to:-
www.gov.uk/late-commercial-payments-interest-debt-recovery/charging-interest-commercial-debt
for further details.
It is time that the victims of these unethical policies (and it is often a policy), take a stand.