Small businesses owed £27k in late payments

Small businesses in the UK are now grappling with an average of £27,214 in late payments - here are the methods being taken to alleviate the challenges.

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Late payments are now at a disturbing high.

On average, most small and medium-sized enterprises (SMEs) are awaiting a backlog of payments of around £27,000, which equates to around one in six invoices (17%) overdue from customers or suppliers, according to recent research by Intuit QuickBooks. 

52% of SMEs believe that the issues have worsened recently and that their businesses have also been adversely affected by late payments in the last year.

The most common cause of unpaid invoices is simply forgetfulness (23%), followed by the cash flow issues of suppliers (20%).

Late payments take a toll on business owners

Late payments weigh heavily not only on business finances, but on the well-being and financial stability of business owners. 

41% of small business proprietors across the UK believe their businesses are at risk of shutting down within the next year if late payments persist – and it’s even worse in London and Scotland, at 53% and 57% respectively.

Among those personally affected, 35% have had to dip into their personal savings to sustain their businesses, while 31% have been unable to save at all. More troubling still, over a quarter (28%) have reported experiencing poor mental health due to these issues.

Of those affected, late payments have prevented 26% from reinvesting in their businesses and 20% from achieving their business objectives. There are also ripple effects, as 26% have been unable to pay invoices to other small businesses, and 25% have struggled to meet their own supplier obligations.

The administration needed to chase late payments consumes valuable time, with SMEs spending an average of four hours per week on this task, totalling more than 8.5 days each year.

Helen Matthews, founder of the independent paddle boarding business “SUP With Us,” shares: 

Cash flow is critical to me as a small, independent business, and I rely hugely on payments coming in on time. Being paid late for my services can really throw my budgeting plans into disarray, and a bad season can even impact my ability to pay my bills and rent on time. 

The weather-dependent nature of my business means my income can fluctuate, and having to chase down late payments adds to the stress of worrying about the weather and keeping my business going.”

Financial management software alleviates late payment woes

With SMEs feeling frustrated (30%), uncomfortable (23%), and concerned about damaging client relationships (22%) while chasing late payments, any solutions to solve or at least mitigate the inconveniences are in high demand.

Three out of five (60%) SMEs are not currently using an invoice factoring company or any kind of accounting software for invoicing, which could simplify the payment process for customers, and encourage faster payments. 

For those who have adopted it, a quarter (25%) have successfully reduced the number of outstanding invoices, leading to improved cash flow (21%), while a fifth (21%) have strengthened customer relationships by eliminating the need to chase invoices manually.

Matthews’ experience of accounting software is positive.  

“It’s surprising to me that so few SMEs are using software to help combat the issue of late payments,” she says. 

“I use QuickBooks as my financial management software, which puts the information for late payments all in one place and allows me to stay on top of what I’m owed. 

It even automates chasing them for me, which is always the most awkward part!”

Nick Williams, UK Product Director at QuickBooks, emphasises the significance of addressing late payments:

“There are proven benefits to accounting and financial management software when it comes to invoices. 

Not only does pay-enabled invoicing make it easier for clients to pay with the click of a button, but the software also generates automatic reminders, removing the frustration and wasted time experienced by many SME owners. 

Accountants and financial advisors are also valuable partners when it comes to spotting late payment trends and mitigating the impact on cash flow. This makes it not only easier for SMEs to run their business but to succeed.”

Written by:
Stephanie Lennox is the resident funding & finance expert at Startups: A successful startup founder in her own right, 2x bestselling author and business strategist, she covers everything from business grants and loans to venture capital and angel investing. With over 14 years of hands-on experience in the startup industry, Stephanie is passionate about how business owners can not only survive but thrive in the face of turbulent financial times and economic crises. With a background in media, publishing, finance and sales psychology, and an education at Oxford University, Stephanie has been featured on all things 'entrepreneur' in such prominent media outlets as The Bookseller, The Guardian, TimeOut, The Southbank Centre and ITV News, as well as several other national publications.

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