UK SMEs chasing £50bn in late payments

SMEs across the UK are chasing more than £50bn of late payments, highly impacting their cash flow and productivity.

A study surveying 1,000 CEOs, founders, directors, and senior management staff in SMEs has shown that small and medium size British businesses are tracking down late payments worth more than £50bn.

The research revealed that SMEs are chasing five outstanding invoices at once, with an average of £8,5000 being owed and 1.5 hours per day – an equivalent of almost 900,000 hours in a day being used.

Self-employed and working alone individuals are also encountering an extortion amount of late payments being owed, having an average of four outstanding invoices at any one time – nearly reaching up to £1,000. They claim to be spending an hour a day chasing these invoices.

In addition, businesses with 10 to 50 employees also have an average of 7.5 invoices, with over £13,000 being owed in late payments.

London businesses at the top of the charts

London-based businesses struggle the most in terms of late payments – claiming an average of seven invoices outstanding and over two hours a day spent chasing them up.

Scotland gets second place in the ranking, with an average of six unpaid invoices, amounting to an hour and a quarter per day used tracking down payments. With only three invoices being chased up on average, businesses in the South West seem to have it best.

In 2016, research led by the Federation of Small Businesses disclosed that 50,000 SMEs were closing their businesses due to a significant amount of late payments – a £2.5bn hit to the UK economy which marked the beginning of a long struggle for small British businesses.

Impact on SMEs

Oliver Prill, CEO of Tide, said: “It has been known for a while now that late payments are crippling SMEs, with the government having tried a number of times to address the issue. It is however shocking to see exactly how much time SMEs, and particularly the self-employed, are wasting by having to chase clients to pay promptly. Cash flow is crucial for SMEs, and just a few late payments can tip them into danger of becoming insolvent.

“In addition to wasting time chasing payments, decision makers and senior leaders at SMEs are spending 30% of their working day (12 hours per week) on unprofitable admin tasks, based on the average weekly hours worked. This is equal to almost two and a half hours each day (30%) – totalling 12 hours per week spent on tasks such as banking, expense management, book-keeping and accountancy. 83% say they regularly work outside of ‘normal’ office hours, with more than half (55%) working weekends and 2 in 5 working on bank holidays (40%).”

Prill added: “The fact that SMEs are spending 30% of their time undertaking unprofitable admin tasks is unsustainable. SME owners and leaders are master jugglers, they are proficient at undertaking multiple tasks at once and aren’t afraid of working long hours to fit everything in, however there is a concern that the time taken on admin will have a negative impact on the growth and success of a business.

The amount of admin necessary in running a business has long been an issue, and so the introduction of technological solutions such as Tide are crucial in helping SMEs to be more productive. By connecting a current account to tools that help with the management of expenses, creation and payment of invoices, credit applications and accountancy software is helping SMEs to avoid the repetition of many processes and allowing them to spend less time on banking and admin and more time on growing their businesses.”

A big cost

UK small businesses spend more than a week a year chasing late payments, according to a study by Intuit QuickBooks.

What’s more, almost three fifths of payment tracking occur outside working days, meaning small business owners are twice as likely to prioritise their company’s financial well being over time spent with their family.

Rather than spending time on supporting employees or focusing on business growth, SMEs spend hours chasing late payments – a time worth £6.8bn to small business economy.

Reflecting on these findings, Chris Evans, VP and UK Country Manager at Intuit QuickBooks said: “We recognise that the problem of late payments is felt among small business across the UK. Our research found that 56% of all time spent chasing payments takes place outside of the working day and eats into personal downtime.

“The combination of chasing invoices and bad payment practices means small businesses can run out of accessible cash, which has a real impact on their ability to take on new work or pay suppliers, employees and even themselves on time – adding unnecessary stress to their lives. Cash is oxygen for small businesses and without it they cannot breathe.”

Optimising cash flow and preventing late payments represents a real challenge for SMEs – as these can be extremely detrimental to the company’s financial well being.

Richard Pepler, CEO of Optimum Finance, said: “This payment gap, over a sustained period means SMEs struggle to meet regular monthly expenditure commitments. Even if they don’t get paid by their customers on time SMEs still need to pay rent, salaries and running costs. This then means using other cash sources – which could be personal cash, credit cards, loans or overdrafts.

“Lack of available capital is the main reason for SMEs failing during their first three years and as companies grow, take on larger clients or customers and look to expand their teams, access to cash is the single biggest factor in determining long-term success.”

Minimising the amount of late payments

Sonia Navarrete, Content Analyst at Capterra, believes that opting for accounting software can be the best solution for SMEs to avoid chasing late payments.

Navarrete commented: “Most SMEs in the UK are keeping their accounts on a spreadsheet and spending time in manual tasks such as chasing payments and clients manually. In the case of a micro business, the accounts and main tasks can be done in a spreadsheet. However, this may become an issue as the company grows and more data needs to be recorded.

“The news that UK SMEs are chasing £50bn in late payments only comes to show that a more efficient system to track and chase payments is needed. Making the payments easier for the clients will encourage them to do so on time – almost all cloud-based software offer the option of online payment and if companies are able to instantly access the payment link on an invoice, the chances of timely payment will grow significantly.”

Identifying various benefits accounting software offers, Navarrete added: “Accounting software can offer multiple and faster ways of receiving payments, giving SMEs the opportunity to be more flexible with big companies and adapt to their needs. Obviously, this won’t help a lot if clients don’t want to pay but can make it more difficult for them to avoid it.”

Negotiating a contract with your client can also be a solution to avoid late payments.

Pepler explained: “Ensuring that payment terms are negotiated properly at the beginning of a business relationship or new contract can prevent a pattern of long-term delayed payments. SME owners should credit check all new clients and take action accordingly to offset any high-risk clients by considering upfront payments, deposits or part payments, for example, 50% at the start of a project or job and 50% on completion.”

Whilst UK SMEs face a growing amount of late payments, time spent on chasing can hugely impact their businesses, meaning prevention can often be the solution to the hours lost on productivity and growth.

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