Delays in payments are a growing issue that is stifling the growth of small and medium enterprises (SMEs) in the UK. These late payments can lead to cash flow problems, increased stress, and even the closure of businesses. In this article, we will dive into the severity of the issue, its implications, and explore some effective payment solutions for small businesses.
The State of Late Payments in the UK
A number of recent reports have highlighted the prevalence of late payments in the UK and their impact on SMEs.
Prevalence of Late Payments
According to research from Barclays, approximately 58% of SMEs are currently waiting on late payments from customers. Similarly, research by Payit, NatWest’s open banking payments solution, reported that 27% of British SMEs are owed between £5,000 and £20,000 in unpaid invoices.
The FSB, Federation of Small Businesses, is the UK’s largest business support group and the voice of small businesses and the self-employed. Mike Cherry, the FSB National Chairman, said in 2022 “Late Payment was destroying thousands of small businesses even before the pandemic hit — the pandemic has made matters worse”. A more recent report from the FSB found that on average, 52% of SMEs experienced late payment in 2023.
In the face of these figures, it’s clear that late payment is a widespread issue affecting a significant proportion of UK SMEs.
Impact on Businesses
The impact of late payments on businesses is multifaceted and far-reaching.
Cash Flow Issues: The most immediate and apparent consequence of late payments is cash flow instability. For SMEs, this can severely impact business planning and threaten the ability to pay suppliers and staff.
Stress and Mental Wellbeing: The stress of waiting on late payments has more than just a financial impact. Reports suggest that the mental wellbeing of business owners can suffer as a result of late payments, with many having sleepless nights over unpaid invoices.
Operational Impact: The time and resources spent chasing late payments can also have a significant operational impact. Instead of focusing on improving customer service, developing new products, or evolving business growth strategy, businesses are often forced to spend their time chasing money that they have already earned. The problem is even more acute for businesses that do not have accounts departments, as it means that this task must often be done by the company owner, who already has a lot of spinning plates to deal with.
The Role of Payment Solutions for Small Businesses
With the prevalence and impact of late payments in the UK being so significant, there’s a clear need for effective payment solutions for small businesses.
The Rise of Open Banking Payment Solutions
One of the promising developments in this regard is the rise of open banking payment solutions. Open banking is a system that allows third-party financial service providers to access bank data through APIs, enabling the development of new financial products and services.
Paylists, a new financial tool, has been specially developed for small businesses in the UK to reduce late payments and improve cash flow. It offers customer billing software that is incredibly easy to use and free for up to 50 invoices per month. It fully integrates with accounting software like Xero, is 100% secure and offers open banking. Perfect for small businesses who want to get paid!
The Role of Regulatory Measures
Regulatory measures can also play a crucial role in mitigating the impact of late payments.
The Prompt Payment Code (PPC) is one such measure. Through PPC, businesses can claim late payment interest and compensation if they miss a payment deadline. However, uptake of such measures has been low due to fears of losing future business.
The FSB has called for more stringent measures, such as making the PPC mandatory for all local authorities and creating a new local authorities Payment Practice League Table.
Alternative solutions for late payments
Barclays offers alternative methods of finance and protection for SMEs, such as invoice financing and invoice insurance.
Conclusion
Late payments are a significant issue affecting the growth and sustainability of SMEs in the UK. However, with the rise of open banking payment solutions and the potential for stronger regulatory measures, there is hope for improving the situation.
By adopting effective payment solutions for small businesses, SMEs can better manage their cash flow, reduce the stress associated with late payments, and focus their efforts on growing their business.
References
- NatWest Group
- Barclays
- FSB’s Time is Money: The Case for Late Payment Reform
- FSB’s 400,000 small firms threatened by late payment as costs surge new study finds
In conclusion, the vexing issue of late payments can be alleviated through effective payment solutions for small businesses. These late payment solutions not only ensure timely payments but also contribute to the overall financial health of the SMEs, paving the way for their growth and success.
