Jun 2016 | Financial Compliance

Late payments is a big problem for many organisations in the UK

Its impact on those with fewer than 50 employees are typically twice as likely as large corporates. Many SMEs don’t manage or pay close enough attention to their payments until it’s too late and the payment is overdue, and even then they may be afraid of jeopardising the relationship.

Late payments are one of the biggest threats that SMEs face with two thirds (67 per cent) agreeing that late payments are leading to some SMEs being forced to close down. Two in five (41 per cent) confirmed that late payments have had a significant impact on their own business’ cash flow, affecting a number of key business operations(2).

The statistics

  • SMEs are waiting for up to £255 billion in late payments with 67 per cent saying this was leading to the closure of their firms.
  • Out of the survey of over 600 SME owners and decision makers, one in five (20 per cent) reported that they were owed more than £25,000 while almost one in ten have more than £100,000 outstanding. It is estimated that more than 2,600 SMEs (1 per cent) are owed more than £1 million.
  • A large proportion (41 per cent) said late payers placed a significant pressure on their cash flow(1).
  • Half (49 per cent) of small businesses say the government should be doing more to help SMEs In this area.
  • Over a quarter (28 per cent) of those surveyed think the government is doing all it can to help SMEs(2).

The Dilemma

The growing market of trade credit, one of the most important financial markets in the world supporting almost half of all business-to-business transactions in the world, has a common by-product of late payments. There are many different types of late payments but most commonly is when a healthy customer pays an invoice later than the agreed date. At least 30 per cent of all credit-based sales in developed and emerging markets are paid outside the agreed terms(3).

Although late payments can be rational, it can hurt individual small businesses and the wider economy through increased costs, reduced hiring and capital spending and the failure of suppliers.

Despite its importance and the problems it brings to businesses, ending late payment has proved to be an elusive goal for governments across the world. The UK government has started to recognise the problem that late payments cause for small businesses in particular. Most recently, through boosting trade credit through the support of alternative finance.

Don’t let the collection of payments take a back seat in your business and leaving it till it’s too late. You can avoid the problem of late payments by having an efficient credit control and collections process as well as avoiding these invoicing mistakes. Experian Business Express also have a very clever tool called Ledger Manager which can help you improve your collections process by taking your sales ledger data and combining it with Experian’s credit information. It shows you exactly where your money is and highlights the top debtors to your company.

Sources: 1 smeinsider; 2 zurich; 3 smeweb