Are you being held back by cash flow problems caused by late payment of invoices? You’re not alone. A recent report by Time Finance found that SMEs are owed an average of about a quarter of a million pounds in outstanding invoices. At the same time, the Federation of Small Businesses (FSB) has reported that 52% of small businesses have experienced late payments.
Are you among these? And, if so, what can you do about it?
The Late Payment Crisis
SMEs, and especially small businesses, have always been vulnerable to late payments, especially if they supply larger businesses, but the problem seems to be growing much worse. The FSB report found that 25% of small businesses report late payments increasing, while 37% have been forced to apply for credit in order to manage their cash flow.
Although the Time Finance report doesn’t give breakdowns, it’s reasonable to assume that the £250,000 average owed reflects a lower figure among small businesses and an even higher one among medium businesses. Though, this has to be viewed in relation to the business’s turnover, so that the impact is likely to be proportionally much the same for a microbusiness owed a much lower figure.
The Impact of Late Payment
As mentioned, the late payment crisis has forced a large proportion of small businesses to apply for credit just to manage their cash flow. It’s also probable that late payments have contributed to increasing numbers of small businesses closing down, although other factors, such as lockdown, Brexit and energy prices, have also played a part.
However, late payments also help to stifle economic growth. Even if SMEs don’t suffer enough from late payments to threaten their own payment of bills and wages, cash flow problems may restrict their ability to invest in growth. Since SMEs form a major section of the economy, these restrictions will ultimately hit everyone.
While many late payers are other SMEs, the chain of problems can most often be traced back to late-paying large corporations. As FSB Policy Chair Tina McKenzie puts it, “Big businesses shouldn’t be using small firms as a bank. It’s time for them, too, to step up and take responsibility for poor payment practices.”
What Can Be Done About Late Payments?
Ultimately, the late payment crisis can only be ended by government action. The problem is that, although the government recognises the problem and has been conducting reviews for a number of years, there’s still no sign of legislation to enforce prompt payment regulations. This is in spite of there being broad public support for the measure, according to the FSB.
Even so, you aren’t helpless. Having an efficient credit control system in place will reduce the number of “forgetful” debtors, while bad debtors can be pursued by professional collection agencies. Give me a call if you need help with any of this.