When asked why, owners said their customers were often themselves waiting for payment (32%), while there was also a lack of consistency in payment terms (27%).
In the recruitment sector, firms wasted most time each month chasing payment (three days), significantly more than IT & telecoms (1.8 days) and manufacturing & utilities (1.7 days).
Paying the price
More than half of business owners worry about unpaid invoices and the problem is worst in London, where the average small business spends 1.5 days a month chasing payments, followed by Wales (1.3 days).
Reduced productivity was identified by 37% of respondents as a consequence of late payment, as well as cash flow issues, losing money and other work not getting done.
Emma Jones, founder of small-business network Enterprise Nation, described the problem as a critical issue that needs sorting out for the benefit of small businesses and the UK economy as a whole.
“Nearly 60% of all UK small business invoices were paid late in 2015, which can cripple and often close a business within its first few years,” she warned. “The late-payment epidemic has to change, so small-business founders don’t spend so many hours chasing [payment] and worrying about their cash flow as a result.”
Xero has also launched chasingpayments.com, a new website that provides more comprehensive research results and advice on credit control and cash flow management. A parody of Adele’s Chasing Pavements, called Chasing Payments, has also been created.
For more than a decade the Federation of Small Businesses has sought to tackle the UK’s late payment problem. It has lobbied the Government for “stricter enforcement of the Prompt Payment Code”, by which signatories must pay suppliers within 60 days maximum (unless in exceptional circumstances).
Recently, Waitrose announced its intention to “move its payment terms for all UK small food producers to a maximum of seven days” on “receipt of a valid electronic invoice”. The supermarket says 600 UK food producers will benefit.
Writing off debt
Non-payment is much worse than late payment, of course. Research by Bibby Financial Services suggests that 27% of UK SMEs (about 1.4m businesses) have had to write off debt caused by late payment in the past year.
It estimated that the average amount written off by SMEs because of unpaid invoices was £11,829 (£15,000 was the average in the UK construction sector). Bibby is urging UK SMEs to take steps to prevent late payment and customer non-payment.
Blog written by freelance editor, SME journalist and copywriter Mark Williams.