If you were to ask any small or medium sized business what their biggest headache is, I’m pretty sure “late payments from our customers” would come pretty high on the list.
From speaking to small and medium-sized businesses every day, it’s clear that it is a challenge facing many out there. But it turned out to be a bigger issue than we first thought, with our research showing that as many as 81 per cent of SMEs have had cashflow issues because of late payments. The figures are certainly not insignificant; 82 per cent of SMEs have up to £25k outstanding in late payments. Furthermore, 51 per cent of SMEs believe their business would run smoother if they had fewer late payments.
There is no shortage of startling figures and stats when it comes to the issue; in July, BACS revealed SMEs are owed a total of £14bn by customers. Although this is an “improvement” compared to five years ago, when the total was double that at £30.2 billion, the fact it’s still such a big issue is at best frustrating, at worst the reason for a business’ decline into serious debt or even insolvency. It’s clear that finding a long-term, workable solution needs to be a top priority for the UK business community.
What is the solution?
There are many thoughts and theories on what that solution could be, and steps have already been taken by the government to tackle the issue in the form of late payments reporting. Large companies are now required to publicly share details of the time it has taken them to pay their suppliers twice a year.
It’s a well-intentioned piece of legislation, aimed at solving an extremely complex issue. But, is creating ‘us and them’ rules the right path to take? In my opinion, divisive government intervention that ‘names and shames’ won’t work well because this is not just a case of the bigger boys picking on the little guys. Our research shows that, even within the SME sector itself, it’s the medium-sized companies that are more heavily impacted by late payments.
Businesses must work together
Every company has supply chain and cashflow challenges, from micro-businesses to large corporates. This is not a small business issue – this is an every business issue. When you consider the number of things companies have to worry about – recruiting the right people, navigating complicated new rules and legislation such as the Insurance Premium Tax, attracting new customers and building their brand – it’s not good enough that the issue of late payments is being caused because of the way businesses work with each other.
This means that the business community are in the best position to create a solution by coming together and taking a holistic approach that truly works for everyone. A happy and functioning business community makes for a healthy and flourishing economy.
Of course, laws are needed to support small business development and, after years of economic uncertainty, the growth of the SME sector is more important than ever and needs to be helped along wherever possible. But, the threat of prosecution isn’t the right approach. Businesses need flexibility and if they can’t have that, the number of transactions in our economy will fall.
As the UK prepares itself for an unprecedented future as Brexit looms ever closer, now is the time to tackle late payments for the common good and I believe only the business community itself can effectively do this – and I urge them to start the process now.
Anthony Persse, Director of Strategy at Ultimate Finance