Late payments are stifling SME growth

It has been described as supply chain bullying: small firms, with little bargaining power, are taken advantage of by slow or late paying corporate customers. 

For many businesses, especially smaller operations, getting paid on time can be the difference between being open one month and closing the next. 

When payments are late – or don’t arrive at all – you can be left feeling powerless. You may be reluctant to speak out or take action against a late payer for fear of damaging a crucial business relationship.
 
This article will shine a spotlight on the extent to which late payments suffocate growth. 

It has been described as supply chain bullying: small firms, with little bargaining power, are taken advantage of by slow or late paying corporate customers. 

For many businesses, especially smaller operations, getting paid on time can be the difference between being open one month and closing the next. 

When payments are late – or don’t arrive at all – you can be left feeling powerless. You may be reluctant to speak out or take action against a late payer for fear of damaging a crucial business relationship.
 
This article will shine a spotlight on the extent to which late payments suffocate growth. 

1. Late payments are a huge, widespread problem

This is no small or isolated problem. Businesses are owed an estimated £26 billion in late payments at any given time, according to research from the Government. For those businesses awaiting payments, that equates to a hole in their cash flow of around £17,000 each. The smaller your enterprise, the more significant that type of sum is likely to be – especially in tough trading conditions. 

For SMEs in particular, even a small number of late payments from customers can be enough to put them out of business as they are unable to meet their own financial obligations. 

In fact, it has been estimated 14,000 businesses close each year in the UK because of late payments. That’s equivalent to 38 businesses every day that should still be contributing to economic prosperity and employing people. It is also estimated that each year, approximately 40,000 jobs are lost due to companies failing as a result of late payments. 

Businesses should never collapse because they haven’t been paid on time.

2. Late payments don’t just threaten cash flow

This isn’t just about keeping the cash flowing and the accountants happy. If a business isn’t paid on time, there are usually other costs to bear, financial and otherwise.

For a start, late payments can drain resources. Your team may have to spend precious time chasing what you are owed – making phone calls, writing emails, sending letters or taking legal action. On average, UK businesses waste 86 hours per year dealing with late payments. Think what they could do with that time.

Sometimes, business owners may even feel compelled to inject personal funds into the business to keep it running or use a business credit card to fill short term gaps. This is clearly not sustainable or fair.

Then there is the toll on morale and mental health of business owners, as slow or late payments take a strain. Not getting paid gives business owners sleepless nights. One survey found that nearly two thirds (63%) of small business owners suffered from stress, anxiety or depression due to issues around waiting for money that they are owed. 

The Small Business Commissioner has published new guidance to help SME owners find mental health support and practical help when late payments are affecting their wellbeing. This includes connecting with other business owners, and finding appropriate support. 

3. Late payments have a wide economic impact

Such is the extent of the late payments crisis, that it has a significant impact on the economy. Late payments are estimated to cost the UK economy almost £11 billion per year. That is equivalent to approximately 0.4% of GDP. What a waste.  

One bad corporate citizen can have wide financial impacts. One notorious late payer was Carillion plc, the construction and contracting firm which collapsed in 2018. 

Carillion imposed payment terms of up to 120 days on its smaller suppliers and contractors. When it collapsed, many SMEs were left unpaid for up to three months of completed work, despite having already incurred costs for raw materials, time, and labour. An estimated 30,000 supply chain businesses were impacted. It should have been a wakeup call that was never to be repeated.

How trade credit insurance can help 

If you run a small business, it can be hard to fight back against slow and late payers. Ideally you would be able to avoid working with specific customers based on their payment behaviour – but this can be far from easy in reality.
 
We do see firms charging late fees or interest, or imposing stricter payment terms where they can. Some even resort to taking legal action. 

The over-riding feeling is often that you’re on your own. But there is help. For a start, there is the Small Business Commissioner as mentioned previously. 

You can also take things a step further and work with a trade credit insurance provider like Atradius. Trade credit insurance, also known as credit bad debt insurance or debtor insurance, can be a lifeline in the face of losses caused by failed payments from companies you supply with goods or services.

The cover will enable you to operate with far greater confidence. You can be secure in the knowledge that your accounts receivable are protected - whether you trade solely in the UK, or sell goods or services overseas.

Get in touch to learn how trade credit insurance can protect your business from bad debts.