Most Small Businesses Are Yet to Receive Payments, or Are Struggling with Delayed Payments
**Chronic Late Payments Plague UK Small Businesses**
A persistent issue for small and medium-sized enterprises (SMEs) in the UK is the 90-day invoicing cycle, with many businesses owed significant amounts in unpaid invoices. On average, SMEs with 10 or more employees are owed between £18,000 and £22,000, and this figure rises to £20,973 for companies with 20 to 49 employees.
The reasons behind this prolonged payment cycle are varied. Many invoices go unanswered, even after follow-up attempts, suggesting poor internal processes or intentional stalling. Invoices can also get stuck in a customer's internal approval process, and customers often request copies of invoices, which can be a tactic to delay payment. Moreover, some customers habitually exceed agreed payment windows.
The UK government has taken steps to address late payments, such as the Prompt Payment Policy, which requires customers to pay 90% of undisputed and valid SME invoices within 5 days and 100% within 30 days. However, adherence to this policy remains inconsistent. Other measures include refining regulatory frameworks and ensuring fair business practices, but they do not directly address the specific late payment issues faced by SMEs.
The Small Business Commissioner, Emma Jones, CBE, is focusing on tackling late payments and unfair payment practices. Todd Davison, MD of Purbeck Insurance Services, emphasizes the importance of SMEs keeping track of invoices, chasing payments promptly, and considering exercising their legal rights for late payment fees and interest charges.
Recent developments aim to reduce the risk faced by SMEs from late payments and unpaid invoices. A partnership between Countingup and Hokodo has been announced, and Beat Syndicate 4242 of Lloyd's has become the first globally to insure the instant payment of business-to-business invoices against dilution risk.
However, there is a gender late payment gap, with male SME business owners owed higher amounts in late payments compared to female business owner/managers. Furthermore, 77% of SME business owners and managers are owed money from their late-paying customers.
Despite these challenges, Davison calls for immediate action from the Government's consultation and urges Emma Jones, the Small Business Commissioner, to prioritize addressing late payment issues. Late payments remain a significant threat to SME survival, costing the average small business £22,000 a year. Davison also advises SMEs to secure personal guarantee insurance when taking personal guarantee backed loans to protect their personal finances in case of business failure.
- Insurtech companies like Countingup and Hokodo are partnering to insure instant payment of business-to-business invoices, aiming to reduce the risk faced by small-business owners due to late payments and unpaid invoices.
- Recent studies have found that there is a gender late payment gap, with male small-business owners being owed higher amounts in late payments compared to their female counterparts.
- Given the severe financial impact of chronic late payments on small-businesses, Todd Davison, MD of Purbeck Insurance Services, encourages small-business owners to take immediate action, urging the Government to prioritize addressing this issue, while also advising them to consider securing personal guarantee insurance for loans to protect their personal finances.
