A new poll of 1,000 business owners has revealed how the scourge of late payments has pushed nearly a quarter of all the UK’s small and medium-sized businesses to the brink of insolvency and possible liquidation or bankruptcy.
The research, which was commissioned by the electronic invoicing network Tungsten, showed just how deep seated this problem has become, with 23 percent of the business owners questioned reporting a brush with insolvency as a direct result of invoices which were not paid on time.
The extent of this issue is such that half of all invoices issued by small businesses are paid late with the average small-to-medium-sized enterprise owed £40,857 in unpaid invoices, £20,937 of which is overdue.
While this problem is clearly affecting small business, there’s also a wider impact on the economy as a whole. When the £40,857 in unpaid invoices is extrapolated across the 5.2million small businesses in the UK, we get a better idea of the extent of the problem, with unpaid bills in the region of £212bn.
Large companies are not the only offenders
The assumption is that larger companies commonly employ ‘bully boy’ tactics and withhold payments for as long as they can to benefit from the interest that accrues while the money remains in their account. However, the research has found the problem is more complex, with a diverse range of businesses responsible for making late payments.
Of those businesses surveyed, 22 percent said the majority of their late payments were from large businesses, while 11 percent identified medium-sized firms as the leading culprit. 8 percent said the public sector was the leading cause of untimely payments, while 33 percent said there was no clear pattern the late payments that were affected by.
Perhaps surprisingly, the technology sector was also identified as one of the most prolific offenders, with almost a third of all businesses unfairly impacted by payments that were made long after their due date.
The difference between a successful month and a financial shortfall
The most frustrating thing about late payments for many business owners is that they bear no relation to the profitability or performance of the business. A small business could have been performing well on paper, but an unpaid invoice can make all the difference between a successful month of trading and a dangerous financial shortfall. The worst case scenario is that this dearth of cash flow leads to insolvency.
In response to the research, the small business minister, Anna Soubry, said: “It is completely unacceptable that late-paying companies are stifling growth and productivity for small businesses and potentially putting otherwise successful businesses at risk.
“Through the Enterprise Bill we will create a Small Business Commissioner to help small firms settle disputes with larger companies over late payment. We are currently consulting on these proposals and I want businesses of all sizes to give us their views.”
One of the leading causes of business failure
Late payments, and the subsequent cash flow problems that result, are one of the leading causes of business insolvency failure, liquidation and bankruptcy for sole traders. When the cash stops flowing, there’s very little even successful firms can do to stay in business.
To help businesses fight against this scourge of late payments, the Forum of Private Business (FPB), a lobbying body, believes the government should agree to “faithfully transpose” the EU Directive on late payments, which would mean businesses could automatically charge a minimum of £36 in interest on late payments.
However, although this may help to deter some smaller businesses from withholding payments, it is unlikely nominal interest charges would dent the number of payments withheld by medium-sized and larger businesses.
How can we help?
If you’re finding late payments are undermining an otherwise successful enterprise and pushing your business closer to the brink of insolvent closure you can obtain free advice from Jameson, Smith & Co. Get in touch today to discuss late payments and the impact the resultant cash flow crisis is having on your business.