Small businesses across the UK are facing major cash flow pressure, leading to increased financial instability as a direct result of a late payments culture, according to consultant Duff & Phelps.
“Our concerns follow recent research by Bacs Payment Schemes, which claimed that small businesses are facing a collective bill of £6.7bn a year in outstanding payments owed by other companies, up from £2.6bn in 2017,” said Paul Williams, Managing Director of Duff & Phelps
The government currently promotes its voluntary Prompt Payment Code (PPC) to encourage good practice, but late payments by larger companies remain a common pain point for many SMEs.
Williams said: “Late payments are a financial challenge for many SMEs. Delays in payments can lead to cash flow problems for small businesses, and consequently difficulties in paying their own creditors on time. Approximately 50,000 small businesses fail each year because of late payments, amounting to a £2.5bn shortfall to the UK economy. The average value of each late payment now stands at £6,142.”
Additionally, late payments can also greatly diminish productivity and growth for SMEs, as business owners become preoccupied with managing short-term cash problems rather than focusing on long-term growth initiatives. Small businesses preoccupied with cash flow problems are also less likely to invest in company resources or staff, further limiting their opportunities to grow.”
Williams said: “Cash flow is the lifeblood of a business and late payments add to the daily stress and worry that many small business owners already have. Added to that, businesses also end up wasting hours of unproductive time chasing payments. In this modern era of technology, which is designed to enable business agility, late payments are particularly galling as there are no excuses. The day of the ‘cheque is in the post’ is long over!
“Paying companies late shouldn’t be the accepted norm. Organisations facing such financial uncertainty should promptly seek professional advice, but more can be done to avoid businesses reaching this situation in the first place.”
He added: “SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services and adding value to the customer experience, rather than chasing outstanding payments. Lack of cash flow can have a negative impact on supply chains, staff and, ultimately, customers.”