The UK’s smallest businesses are facing a bill of £6.7 billion, up from £2.6 billion in 2017 – just to collect money they’re already owed, according to research by Bacs Payment Schemes Limited (Bacs), part of leading UK retail payments authority Pay.UK.
This latest research, from the people behind Direct Debit and Bacs Direct Credit, shows that the cost of recovering overdue money is now at an average of £9,000 for each business. On top of that, more than a third of small to medium sized enterprises (SMEs) coping with late payments are waiting two months beyond agreed terms to be paid. That’s double the number of businesses who said the same in 2017 (19 per cent).
Paul Horlock, CEO of Pay.UK, said: “Over the last decade, the Bacs Late Payment research has established itself as the benchmark figure used to gauge the economic performance of SMEs. It reflects the overall health and well-being of UK business – when smaller companies do well, so does UK plc; as the backbone of the whole economy, the significance of SMEs cannot be overstated. And automated payments like Direct Debit are one of the most powerful weapons SMEs have in their ongoing battle to be paid on time and in full.”
The delay in receiving settlement is having wide-reaching effects, with over a quarter of SME business owners who do experience late payments forced to pay their own suppliers late; 28 per cent also say they have had to cut their own salaries in order to keep cash inside their businesses.
In addition, the survey revealed a six per cent increase in the number of SMEs experiencing late payments overall, up from 37 per cent in 2017 to 43 per cent in 2018; that makes for a total late payments bill of £13 billion across the UK, close to 2017’s £14 billion. More positively, the average amount each company is owed has actually fallen, down from £22,000 in 2017 to £17,000 in 2018.
Ian Cass, managing director of the Forum of Private Business, which campaigns on behalf of small to medium size businesses, adds: “With billions of pounds tied up in late payments, there is a knock-on effect through the whole UK economy. Small businesses are working to tighter margins and with late payment affecting cash-flow it can mean that these businesses can’t invest, can’t grow and in some cases it’s so serious that it can put them out of business entirely.”
Other headline findings:
- More than three quarters (78 per cent) of SMEs owed money are being forced to wait one month or more beyond their agreed terms before they are paid
- Over a third (34 per cent) of SME business owners experiencing late payments say they have to rely on overdrafts to help them meet their monthly obligations
- 40 per cent of SMEs owed money claim that large companies are the worst late paying offenders
- 51 per cent of SMEs take large company payment practices into account before trading with them
- 43 per cent of SMEs spend around £4.4 billion in admin costs alone, chasing late payments
- 11 per cent of SMEs struggling with overdue invoices have to employ someone to chase for payment
- 21 per cent of companies not experiencing late payments say they are concerned about the issue, an increase of 11 per cent on 2017 figures
- 82 per cent of SMEs not experiencing late payments cite better invoicing practices along with being paid by Bacs Direct Credit as the reason they don’t experience late payments.