Research from Xero’s Small Business Insights has found that the UK’s small and medium-sized businesses are owed an average of £24,841 in late payments on any given day. That equates to 11 months of the average workers’ wage or 37 months of mortgage repayments. Extrapolated across the UK’s small business economy, the result is a total deficit of £141bn, which is having an enormous impact on growth.
Late payments across every sector
The research was based on the analysis of two million SME invoices issued using Xero’s accounting software. It revealed that more than three-quarters of SMEs are owed money outside of the agreed payment terms at any given time.
More specifically, it found that in August this year, the average 30-day invoice was paid 39.67 days after it had been issued, so nearly ten days after the payment was due. Of the invoices that were overdue, the average late payment was made 64 days after the invoice was issued, which is more than double the payment term.
Although late payments were commonplace across every UK sector, there do seem to be some sectors that suffer more than others. The sectors with the highest proportion of late payments were transport, postal and warehousing, with more than two-thirds (68%) of all payments received after the due date. Electricity, gas, water and waste (62%) and manufacturing (60%) were the next worst performers.
The five small business sectors owed the most money on average (per business) include:
- Wholesale trade (£42,989)
- Administration and support (£40,662)
- Transport, postal and warehouse (£31,555)
- Public administration and safety (£31,541)
- Electricity, gas, water and waste services (31,309)
Edward Berks, EMEA director at Xero, said: “At a time when the world needs small businesses to succeed, it’s estimated that 50,000 businesses in the UK fail each year because of cash-flow issues.
“It’s increasingly critical that the government and industry take the right steps to ensure small businesses get paid faster. New measures to crack down on big business culprits and smarter technology to automate payments will all help to alleviate the pressure on small business cash-flow.”
How does the government plan to tackle late payments?
New measures to tackle the problem posed by late payments were unveiled by the Small Business Minister Kelly Tolhurst in October this year. The proposals hope to build on the action the government has already taken, such as the appointment of the Small Business Commissioner and the introduction of the Prompt Payment Code. The proposals include:
- A call for evidence into how company boards can create responsible payment practices throughout their supply chain – for example, by making a non-executive director responsible for the company’s prompt payment performance.
- A call for evidence that will consider how new technology can be used to help small businesses better manage their payment processes.
The Small Business Minister said: “Today’s new call for evidence will help us identify the most effective way possible to tackle this issue once and for all and ensure small businesses are on a level playing with their larger counterparts.”
What impact can late payments have on a business?
Late payments have a huge impact on small businesses. Cash-flow problems are one of the leading causes of failure for the 50,000 or so small businesses that collapse every year. Late payments put a squeeze on cash flow and make it more difficult for businesses to invest in the new equipment, staff and machinery they need to grow.
Then there are the countless emails and telephone calls made chasing late payments, along with an increased reliance on overdrafts and credit card borrowing to make up the cash-flow shortfall. Late payments can also harm a business’s credit score, making it more difficult to raise affordable finance in the future. All of these issues damage the health of the small businesses the UK is so reliant on.
Automate your payment processes with Direct Debit
One of the best ways to manage late payments and boost cash flow is to automate your payment processes. London & Zurich’s Direct Debit payment solution can help you streamline your payments and avoid late payment in the process. For more information, please get in touch today.
