Late payments still a problem for UK businesses but recognition is a positive step forward

It’s fair to say that debt is an inevitable part of any business, whether this is in the form of debt to suppliers in your supply chain, debt in your mortgage or debt to your bank. It’s a risk that comes along with not just business but in our everyday lives also; we know that we will carry debt of some form throughout our adult lives. Of course having no debt in our lives would be preferential, but sometimes it is necessary. The necessary debts are the ones we can’t avoid like mortgages or the 30 days credit with suppliers. But then there is the debt that we could’ve avoided like overdrafts and fines when we miss payments to suppliers.

The late payments culture has always been a problem within the business community and one that businesses and the Government are trying to tackle step by step. Just because a delayed payment is still being chased and kept on the radar, this doesn’t mean that they aren’t costing a business time and money for having to chase the payment and cover their cash flow in the meantime. Unfortunately, the small business community seems to be the ones most affected by this.

According to a survey by Zurich (1), the most recent total owed to British SMEs by their customers currently stands at a total amount of over £255 billion.

  • One in five of those surveyed (20 per cent) were owed more than £25,000
  • One in ten (8 per cent) £100,000 or more
  • And 1 per cent was waiting for upwards of £1 million (1).

Looking at these figures, it’s no wonder that late payments are causing SMEs to have cash flow problems and on a worst case scenario, even put their business in jeopardy of being closed down.

Late payments doesn’t just mean not receiving money from customers and having to chase this up every once in a while, it has a knock on effect on different parts of the business. For your operations, you have to allocate people and time to dedicate themselves to chasing up this payment regularly and keeping in contact with them. For your accounts, because they’re low on cash due to customers paying later than expected or than they should, these monies need to be recuperated from elsewhere. If your business has the contingency money then great but some businesses may not be able to afford this. For those that don’t, it could mean dipping into overdrafts to pay your own suppliers or even paying a fine to them for missing their credit terms to you.

This growing problem isn’t one that has gone unnoticed by other organisations and the Government. A consultation paper was released by the Department for Business Innovation and Skills in October of last year (2015) titled Late Payment: Challenging ‘grossly unfair’ terms. The paper discusses the seriousness of the issue and the knock on effect this has on businesses along with the actions that the Government plans on taking to tackle late payment and unfair terms and practices. There is still a lot that can be done but recognition of the problem is a huge step forward. Larger organisations are also recognising this problem and taking pro-active steps to aid this pandemic. Large supermarket chains are now reducing the days they take to pay small suppliers with hundreds of food producers potentially benefiting from this decision (2). This is great news for those businesses where larger businesses may be their main customer and source of income.

Experian Business Express can help you to reduce your exposure to late payments by providing you with the tools to credit check your customers and suppliers before deciding to work with them. With our UK business credit reports, we can help you in choosing the right people to work with by being able to see their financial status, how quickly they’re paying their bills and even the directors associated with that business.  Take steps to get in depth financial information at the click of a button to minimise the chance of late payments affecting your business.

Source: 1 Zurich; 2 fsb

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Posted on by Cindy Yip

Estimated read time: 5 mins