12 September 2023 – Late payments have been a huge problem for small businesses for a long time. But new research revealed that small businesses are waiting on average for overdue invoices worth £27,214 to be paid.
Small and medium-sized enterprises (SMEs) have long called on the government to tackle the issue of late payments. The supply chain issues and high business running costs many businesses have experienced since the end of the pandemic seem to have made matters worse.
Certainly, over half of SMEs believe that the situation has got worse, according to new research.
The time and costs involved in chasing the payment of these late invoices can have a huge impact on small businesses. So it’s no wonder that 41% of small business owners in the UK think that overdue invoices could force them to close down.
Forgetfulness Main Reason For Overdue Invoices
Research by accounting software provider Intuit QuickBooks has shown that on average 17% of invoices issued by small businesses are overdue, which equates to £27,214.
52% of small business owners said that the issue has worsened recently and that their firm was affected by late payments last year.
QuickBooks’ research has also shown that rather than malintent, forgetfulness is the main cause for overdue invoices with 23% naming this reason. Cashflow issues of suppliers are responsible for 20% of late payments.
Not being paid on time has a huge impact on small businesses, not only because chasing for payments is time-consuming. On average, SMEs spend 4 hours a week on this task.
Late payments have kept 26% of small firms from reinvesting in their businesses, while 20% were unable to achieve their business objectives because of it.
26% have said that it forced them to pay invoices late themselves, because it interrupted their cash flow. 25% have said that due to late payment, they were unable to meet their own supplier obligations.
Cash flow is one of the most important things for a small business, so not receiving money on time can have disastrous consequences. QuickBooks’ survey showed that 41% of SMEs said they might have to close if late payments persist.
7,000 Insolvencies Per Quarter In 2024
The Centre for Economics and Business Research (Cebr) has warned that we could see 7,000 business insolvencies per quarter in 2024. Already in the second quarter of 2023 there were 6,700 insolvencies.
That’s 50% more than in Q2 of 2019. Between 2015 and 2019, on average 4,100 businesses had to close down per quarter.
The current difficult economic situation will make it likely that the elevated levels of business insolvencies we have seen in 2023 will continue next year, according to the Cebr.
Especially high interest rates are seen as a major driver for businesses closing down. Many small businesses had to take on loans to stay afloat during the pandemic. With higher interest rates, these have now become more expensive to pay back.
Late payments, no doubt, are adding to the difficult situation for small businesses. QuickBooks’ research showed that four out of ten small businesses believe overdue invoices could be the end of their business.
26% Of Large Businesses Pay Invoices Late
New data from the Chartered Institute of Procurement & Supply (CIPS) shows that average payment times by large businesses haven’t improved since 2018, taking on average 36 days in 2023. This is only one day less than in 2018.
However, the number of overdue invoices has slightly decreased since 2018. In 2023, 26% of invoices received by large businesses have been paid late, down from 31% in 2018.
The CIPS has analysed data from the Government’s Reporting on Payment Practices and Performance Regulation. Under this regulation, large UK businesses have to submit their payment data twice a year.
The legal requirement covers firms that:
- Have a turnover of over £36 million per year
- Have a balance sheet total of over £18 million
- Have over 250 employees
Even though the reporting is a legal requirement, the CIPS’ analysis shows that the number of submissions has dropped every year since 2019. In 2022, there were only 12,829 submissions, compared to 15,087 submissions in 2019.
These figures show that large businesses aren’t taking their obligations seriously, to the detriment of small businesses.
Suppliers should not be expected to bankroll their customers and a culture of ‘buy now, pay at some point’ is not acceptable. Paying suppliers promptly not only strengthens relationships but can lower costs and, crucially, build resilience across supply chains – something that has been severely tested in recent years.Nick Welby, Chief Executive at the CIPS
For small businesses who regularly have to deal with overdue invoices, this data will be worrying, because it shows the current regulations don’t work. Expecting large businesses to police themselves will not solve the problem.
Unless the government introduces penalties for late payments, large businesses will continue to hold on to cash, leaving SME’s out in the cold.