Over £70 Billion in Late Payments Burdens UK Small Businesses

According to new research from Hiscox, UK small businesses are currently owed a staggering £70.4 billion due to late payments. The survey, which included responses from 1,000 small business owners and sole traders, found that businesses typically wait an average of £12,357 each year for overdue payments. Alarmingly, nearly a quarter of all payments, specifically 23%, are received late.

The data emerges just over a year after the introduction of the UK government’s Fair Payment Code (FPC), aimed at alleviating the issue of late payments. The FPC encourages businesses to pay their suppliers promptly and fairly, offering tiered awards for compliance. While the code was intended to foster better payment practices, significant challenges remain for small businesses.

Impact of Late Payments on Small Enterprises

Hiscox’s inaugural Late Payments report sheds light on the cumulative effects of delayed payments. On average, small businesses pursue 14 late payments each year, leading to a collective waiting time of 331 days across all invoices. For 17% of small businesses, payments take over a month to arrive, and in some cases, invoices go unpaid altogether.

One small business owner shared their experience: “There’s always the fear that someone won’t pay up. I’ve had it only twice in nine years where an invoice hasn’t been paid at all. The first time it happened, they were my only client, and it meant I had no money for two months. Working for yourself is a joy. It’s the best. But when people don’t pay up, it not only throws your finances into issues, but it also affects your confidence and piles on stress.”

Sector-Specific Trends in Late Payments

The report identifies certain sectors that are particularly prone to late payments. The IT and Telecoms sector experiences the highest number, with an average of 18 late payments, followed closely by Finance at 17, Healthcare at 16, Retail, Catering and Leisure at 15, and Legal at 14.

The findings illustrate a stark reality: as the size of the business increases, so does the likelihood of receiving late payments. For example, 19% of payments to sole traders arrive late, while this figure rises to 25% for businesses with 10-49 employees.

To counteract these challenges, the report encourages proactive measures for managing late payments. Recommended strategies include following up with phone calls (37%), fostering strong client relationships (36%), and clearly defining payment terms (36%).

Nick Thornhill, Direct and Partnerships Director at Hiscox, emphasized the ongoing struggle with late payments in the small business sector. He stated, “Late payments might be a recurring character in the small business world, but they don’t have to be a thorn in your side. With some clear rules, you can keep your cash flowing and your focus where it belongs – growing your business.”

As late payments continue to pose a significant threat to the financial health of small businesses, it is crucial for both service providers and clients to adhere to prompt payment practices. The financial stability of countless small enterprises hinges on this essential aspect of business operations.