The latest survey by the Federation of Small Businesses (FSB) shows that 8% of small businesses are at risk of having to close this year due to late payments.
The FSB has questioned more than 1,200 small business owners for their latest survey. The results are startling and show that many small businesses are struggling because of poor payment practices by their customers.
Almost one in three of the surveyed small businesses has reported an increase in late payments of invoices in the past three months. The majority of these late payments were unexpected, with only 6% saying that a change in payment terms had been agreed for this period.
According to government statistics, the UK has lost 400,000 small businesses in 2021 and the FSB thinks that we could lose a similar number again this year. This means 440,000 small businesses are at risk of closing in 2022.
Call For Change Of Payment Culture In Big UK Corporations
This late payment crisis is a result of a poor payment culture in big corporations, which has a huge impact on small businesses and the pandemic has only exacerbated the problem.
Late Payment was destroying thousands of small businesses even before the pandemic hit – the pandemic has made matters worse.Mike Cherry, FSB National Chairman
Mike Cherry, the National Chairman of the FSB, wants every big UK corporation to appoint a non-executive director to its board whose responsibility it is to oversee the payment culture.
He calls for a payment culture within big business and government organisations that upholds the prompt payment code. 30-day payment terms should be the norm in business. And he is calling on the government to extend the Small Business Commissioner’s powers.
In the past, the Government has rightly identified greater Board accountability as key to spurring change in this area, but delivery has been slow. We responded to its consultation on extending the Small Business Commissioner’s powers more than a year ago, but have yet to see a response.Mike Cherry, FSB National Chairman
So, due to this late payment crisis alone, many small businesses are at risk of failing. Add to this rising costs, high inflation, new rules for trading with the EU and a pandemic, and we have a perfect storm. 78% of small businesses have reported rising costs. The biggest rises in costs were seen in fuel and utility bills.
Due to Brexit, the way businesses trade with EU countries has changed and full import checks and rules of origin requirements make life for small businesses exporting to the EU even more difficult.
As a result, 74% of small businesses who trade with the EU have reported that their international sales were either the same or decreased in the past quarter. And almost one in four of these businesses have said their exports to the EU have decreased.
Even More Challenges That Could Mean Small Businesses Are At Risk
The new tax year 2022/23 will see an increase in national insurance contributions of 1.25%, which will further put the pressure on small businesses and sole traders.
Rising inflation is another factor that will make it more difficult for small businesses in the years ahead. Due to the pandemic, inflation has risen and was 4.6% (CPIH) in November 2021, according to the National Office for Statistics.
Government borrowing because of the pandemic was at a record high last year. And with the pandemic still raging on, more spending seems inevitable. Indeed, Rishi Sunak only recently offered a £1bn omicron support package for businesses.
This spending has left holes in the treasury coffers that will have to be filled in the years to come. What measures the government will put in place to achieve this is not yet known, but there is a chance they will mean that more small businesses are at risk in the future. Small businesses will have a bumpy ride ahead of them.
With so many challenges, it is no surprise that the confidence of small business owners is on a downward trend.
The UK Small Business Index (SBI) measure of confidence has decreased by 8.5 in the last quarter of 2021. There was no festive cheer for small businesses with another uncertain holiday season due to the pandemic.
In 2021, the measure of confidence for small businesses has fallen every quarter and, as a result, more small businesses than ever have a pessimistic outlook for their future. And the prognosis of the FSB that almost one in 10 or 8% of small businesses are at risk of having to close down in 2022 due to late payments alone will not help.
If you are struggling with late payments from your customers, you might want to look into credit control. This is a mechanism that can help small businesses to stay financially liquid. You can read more about credit control mechanism in our article.