1 in 2 UK Small & Medium businesses are suffering or expect to suffer impacts of late payments ahead of Christmas

  • 17% of all invoices to Small & Medium businesses are paid late in the UK and Ireland, Sage report finds
  • Globally, 1 in 10 invoices are paid late, impacting Small & Medium businesses to the effect  of $3 trillion
  • The UK currently has the highest proportion of invoices that are paid late, with 9% written off as bad debt
  • This year, businesses in the UK are spending on average 15 working days chasing late payments

 London, 7th December 2017 – An economic report published today by Sage reveals the detrimental impacts of late payments on Small & Medium Businesses, currently equating to $3trillion globally. With 1 in 10 invoices failing to be paid on time, the study reports up to 8% of payments are either never paid or paid so late that businesses are forced to write it off as bad debt.

‘The Domino Effect: the impact of late payments’ highlights that almost 40% of Small & Medium Businesses experience direct negative impacts from late payments. As a consequence of late payments, 1 in 5 say they will struggle to pay bonuses around the festive period, and 18% expect an impact on staff pay.

Other common impacts in the UK include delaying investment into the company (25%), and impeding the ability to pay its own suppliers in turn (25%), creating a vicious cycle.

However, when looking at the reasons why Small & Medium Businesses don’t chase payments the reasoning points to a cultural problem. The overwhelming response from 40% of those surveyed is to protect client relationships, indicating that there is a stigma around chasing payments.

Alan Laing, United Kingdom & Ireland Managing Director at Sage, said, “In 2017, it is totally unacceptable for 18% of all payments paid to Small and Medium businesses to be paid late. Entrepreneurs rely on low cash reserves to operate, meaning delays to income can have substantial impacts; from stifling growth and creating unnecessary admin, to paying bonuses over the upcoming Christmas period.

 “We now know the most cited barrier to chase late payments is to protect client relationships. It’s critical this stigma around chasing payments changes so small businesses feel they can chase without fear of losing repeat business. But perhaps even more importantly, we need the UK’s culture around late payments to change, so that small businesses can get on with doing what they love – running their business – rather than worrying about when the money will come in.”

Undertaken by Plum Consulting, the research analysed responses from over 3,000 business builders to look at the effects of late payments on Small & Medium businesses. It highlights significant implications for our entrepreneurs and their ability to operate, plan and grow.

 Global snapshot: The Domino Effect: the impact of late payments

Across the 11 countries analysed Small & Medium Businesses account for at least 96% of total enterprise, ‘protecting client relationships’ is the most cited reason for not chasing late payments – leading Sage to call for a fundamental shift in culture for Small and Medium business to be proud to chase for work undertaken.

Country

Proportion of invoices that are paid late (%)

Average number of days per year spent by SMEs chasing up late payments

Top barrier to chase late payments for SMEs in each country

Proportion of invoices that become bad debt (%)

UK

18

15

Protect client relationship (40%)

9

South Africa

15

20

Protect client relationship (40%)

9

France

11

6

Protect client relationship (21%)

8

Ireland

15

7

Protect client relationship (43%)

8

Australia

9

5

Protect client relationship (29%)

7

Brazil

7

14

Protect client relationship (35%)

7

Canada

10

7

Protect client relationship (31%)

8

Singapore

18

5

Protect client relationship (41%)

9

Spain

12

18

Protect client relationship (37%)

8

United States

13

15

Protect client relationship (32%)

10

Germany

9

5

Protect client relationship (31%)

8

Paul Uppal, The Small Business Commissioner, said, “I wonder how a typical employed person would feel if at the end of the month they received their salaried pay cheque only to find it had been discounted by five, ten or even twenty per cent, just because their employer had paid them on time?!

“Small businesses are vital to the ongoing economic growth of the UK. My aim is to stamp out late and unfair payment practices which create cash-flow problems that so often stifle development and innovation amongst businesses such as these.” 

Tim Miller, Partner at Plum Consulting, said, Losing the cultural stigma of chasing late payments is crucial to escaping the domino effect – all the time that SMEs are worrying about chasing late payments, their own suppliers will be paid late, and the cycle will continue. 

“SMEs are more likely to trade with other SMEs, meaning this will disproportionally affect smaller companies.  An automatic system to send reminders for unpaid bills may get over the cultural aversion – and could also overcome the lack of staff and resources that some SMEs cite as reasons for not chasing late payments.”

Click here to read the full report