Better late than never?
Are late payments single-handedly thwarting small business growth?
If one in three payments to small businesses are late and business owners spend 1.2 days a month chasing them, is a payment made late actually any better than a payment not made at all?
The Federation of Small Businesses (FSB) estimates that £26 billion is owed to UK small businesses and 50,000 are forced out of business as a result. It’s an issue which they say is costing the UK economy £2.5 billion a year.
The cost of late payments
Start-ups and promising young businesses are stuck between a rock and a hard place. Does the entrepreneur dig deeper into their reserves to protect the relationship with their client? Or do they get harder on late payers and risk squandering precious income at a critical stage of its growth?
A lot of business owners will shy away from chasing and aggravating their clients. They’ll try to ride out their cash flow problem in the hope that things will turn around for them. Take this route though, and you risk putting everything on the line, from your health to your home.
A survey of 1,000 SME owners with cash flow issues found that more than a third (36%) had sacrificed their own salary because of late payments, 29% have suffered depression, anxiety, stress and other mental health issues, and one in five (21%) have struggled to pay their mortgage or rent. Some say they were even forced to sell their home.
Vote of no confidence
Despite efforts to clamp down on late payments, 74% of UK SMEs do not think that the newly enforced guidelines will make a difference. In fact, some say the ‘Duty to Report’ measures could make things worse.
The legislation was intended to expose the big companies who were late paying smaller firms by forcing them to publicly report on the average time taken to pay suppliers. SME owners say all that will happen now is that big firm bosses will side step the new rules by expanding payment terms, giving the illusion that they are paying on time.
A question of time
Late payments are likely to be a priority for the newly elected government. All small businesses can continue to do for now, is wait.
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