Tax & admin · 28 November 2018

Late payments scandal: Average small business owed £24,841 in unpaid invoices

50,000 businesses fold every year as a result of cash flow issues

The average small UK business owner is owed £24,841 in late payments on any given day, according to a study of two million invoices.

The research, undertaken by accounting software provider Xero, lifted the lid on Britain’s late payment problem, with so-called “supply chain bullies” treating smaller companies like cash flow solutions.

Late payments worth almost £25,000 equate to 11 months’ average staff wage, 37 months of mortgage payments or nine family holidays. Meanwhile, around 50,000 small businesses fold every year because of cash flow problems.

The research arrives as the Department for Business, Energy and Industrial Strategy’s (BEIS) call for evidence on new proposals to tackle late payments ends today.

Commenting on the volume of unpaid invoices now owed to small businesses, economist Vicky Pryce said: “In the current climate of increased uncertainty, tighter margins and a shaking out of supply chains, late payments just add to the costs of small firms, particularly now as interest rates are on an upward trend. And needing to borrow more, in an unplanned way, does little for a firm’s credit rating, making life more difficult in the future.

“Late payments tend to shift the balance in favour of larger firms either because they are the ones who benefit from paying late or can better withstand the working capital pressures if they themselves are having to cope with late payment of invoices by others.”

“And yet it is the millions of small firms that provide around half of the employment in the UK and much of the economy’s productivity and growth depends on them functioning in a healthy finance environment.”

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late payments

 

Named and shamed: 35 worst offending late payers and the crippling impact on small businesses

The top 35 worst offending businesses for late payments in the UK include household names like E.ON and Thomas Cook.

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Using customer data, Xero revealed which small business sectors were owed the most in late payments

10 sectors most affected by late payments

  1. Wholesale trade (£42,989)
  2. Administration and support (£40,662)
  3. Transport, postal and warehouse (£31,555)
  4. Public administration and safety (£31,541)
  5. Electricity, gas, water and waste services (£31,309)
  6. Financial and insurance services (£29,732)
  7. Manufacturing (£29,123)
  8. Information, media and telecoms (£28,682)
  9. Construction (£25,880)
  10. Professional, scientific and technical services (£23,554)

At a time when the world needs small business to succeed it’s estimated that 50,000 businesses in the UK fail each year because of cash flow issues,” said Edward Berks, a director at Xero.

“Our data shows the impact that this level of debt can have on small companies. Predicting working capital requirements still remains a challenge for small businesses and accessing finance remains expensive and time consuming. But, it’s increasingly critical that the government and industry take the right steps to ensure that small businesses get paid faster. New measures to crack down on big business culprits and smarter technology to automate payments will all help to alleviate the pressure on small business cash flow.”

Three tips to improve cash flow and protect businesses from late payment debt

Experts from Xero offered three methods to help small business owners get on top of their invoices.

  1. Be selective about who you work with and credit check prospective clients. A bad credit history could indicate issues with late payments in the future
  2. Implement interest charges on late payers to encourage prompt payment
  3. Set automated responses: Many accounting software solutions are now capable of issuing automated reminder letters when payments become overdue. Automating the process of sending a reminder email reduced the amount of time you have to spend waiting and chasing for payment.

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ABOUT THE EXPERT

Simon Caldwell is deputy editor at Business Advice. He has a BA in politics and communications from the University of Liverpool, and has previously worked as a content editor in local government and the ecommerce industry.

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