The situation
Late payments are a concern for every small business, as missing finances can quickly add up for business owners.
The Federation of Small Businesses (FSB) has investigated how late payments are impacting organisations. Time is Money: The Case for Late Payment Reform reports that small businesses are at a significant disadvantage when attempting to get money owed from larger corporations. The report also exposes the harsh realities that many organisations face when it comes to receiving compensation for services.
In 2022, an average of 52% of small businesses faced overdue payments quarter-on-quarter. On top of that, 25% of businesses noted that late payments had become more frequent.
Small businesses in the south-east of England and in Northern Ireland were most likely to experience this issue. Many sectors have been impacted by late payments, but the most regularly affected include education, construction and administration.
The impact of late payments
The report found that on the back of overdue payments, 37% of small businesses applied for credit to manage cash flow. This situation is opposed to general opinion about how long businesses should wait for payment. 62% of the British public believe businesses should receive what is owed in a week and 55% think there should be more controls to protect small businesses.
FSB Policy Chair, Tina McKenzie, said: “Small firms are already being stretched beyond their limits with rising energy bills, rampant inflation, and a mounting cost of living crisis.
‘Cash flow is already tight, and that is compounded by being kept waiting months for invoices to be paid, which is a serious roadblock to growth and investment. This also hinders productivity due to the excessive time and effort expended on chasing overdue payments. It is a double whammy that is stifling business success, and in turn, holding back the UK’s economic recovery – but is something that is entirely avoidable.’
Managing overdue payments
Despite clear contracts, some customers are difficult to manage. At this point, it is worth considering the value of their custom. This can mean setting more transparent expectations or even leaving the working relationship behind if it drains too many resources.
Clare Halliday, the founder of Refreshing Scotland, explained that when she was on the Help to Grow: Management Course she learned to let custom that was costing her business go.
Halliday commented: ‘One of the biggest things Help to Grow: Management taught me is to say no. It taught me to offload customers that weren't the right fit for my business. That is a really difficult thing to do when you haven't got a big business, but the course and my experience made me brave.’
You can find out more about the guidance offered by Help to Grow: Management here.
