SMEs are owed almost £25,000 in late payments on any given day, according to research from cloud accounting software providers Xero.
At any one time, 78 percent of small businesses are awaiting payments for longer than the agreed payment terms, which typically stand at 30 days.
In many cases, the amount tied up in late payments is greater than 10 per cent of the average small business’ turnover. The gap widens as businesses grow.
Cash flow concerns for SMEs
The frustrating trend has been dubbed the “late payment cash mountain” by the software firm, who warn that the phenomenon leads to cash flow problems within many small businesses.
With an estimated £141bn tied up in late payments, small companies are struggling to raise the capital needed to invest in business growth.
Economist Vicky Pryce said: “When you are concerned about cash flow, you don’t employ people, and you are not going to train them.
“You can’t borrow because you have this big mountain out there which is still owed to you.”
With SMEs making up almost 50 percent of GDP and 60 percent of employees working for small businesses, late payments affect the economy as a whole.
Pryce added: “People are not paying their debts, which is bad for the economy.
“People are trying to keep their costs down, so they are paying late. The tougher it is in the economy, the worse it becomes.”
Easing the strain
With 50,000 businesses failing each year due to cashflow issues, Xero’s team believe accountants can take actions to ease the strain.
For example, one of the most straightforward steps to encouraging swift payments involves making it as easy as possible for clients to make the payment. Companies such as GoCardless have been praised for making the process almost effortless.
Meanwhile, programmes such as Chaser can help with credit control, freeing up employees’ staff to focus on other things.
Xero’s director Edward Berks said: “For too long, small businesses have suffered with lousy tech, and it was a barrier to entry. Now you can really start a business with an iPad in a coffee shop.
“Digitisation is driving competition and innovation.”
Seeking expert help
If your business is struggling to cope with the effects of late invoice payments, our insolvency experts can help. We offer free advice for small businesses as to the best solution in this scenario. Just contact 0161 907 4044 or [email protected].