A huge number of UK businesses are suffering the consequences of late payments from their clients, new data has revealed. Touch Financial explores this fast evolving scandal, its immediate and long-term implications as well as how firms – from SMEs to large-scale operations – can protect themselves from future damages.
What does the new data reveal about late payments today?
The data in question came to light thanks to a report published by Zurich at the end of August. As reported by City A.M., the insurance company’s study into UK small- and medium-sized enterprises (SMEs) discovered that 53% of late payments made to such firms came from businesses of a larger size than their own. In terms of the durations of time that these fledgling enterprises were forced to wait before receiving their owed funds, 45% of SMEs said they’d been forced to wait up to three months for payment, while a worrying further 14% claimed their monies had arrived between 4-6 months behind schedule.
These figures wouldn’t be so significant to UK businesses if the belated transactions involved insubstantial amounts, but the report also estimated that larger businesses owed an average of £16,250 to the SMEs polled. Zurich’s head of SME proposition Paul Tombs stressed why this exploitative business model is “not sustainable”: “For small companies, working with larger organisations and strong brands is an important part of building and running a successful business. But it is a two-way street and large organisations are simply taking too long to pay small suppliers, which are dependent on reliable, regular invoicing to cover their own costs.”
Are these figures symptomatic of a wider challenge for UK businesses?
Yet the signs of this growing trend have been a long time coming, with numerous developing news stories from the past 12 months indicating trouble at bay for SMEs and indeed whole UK industries in some cases. Zurich’s findings were hardly the first of their kind, for instance; a report published in November 2016 by the Federation of Small Businesses detailed how late payments have steadily risen in the last half decade, leaping from 28% in 2011 to 30% last year. The FSB stated that late payments had caused 50,000 easily avoidable business closures in 2016 alone, costing the UK economy in the region of £2.5 billion in the process.
Come February of this year, City A.M.’s Tony Duggan went so far as to call late payments a “chronic problem” for SMEs, citing statistics showing that 37 per cent of smaller firms considered them a major contributor to their cashflow problems and that a fifth of corporate insolvencies occurred as a result. “Through a reduction in the number of late payments,” Duggan said on the benefits of counteracting these issues, “Businesses able to remain solvent continue to provide jobs across the country.”
Unfortunately the Guardian’s coverage of the late payments situation this August scarcely proved reassuring in terms of progress towards achieving this goal. Social enterprise IndyCube’s founder Mark Hooper estimated SMEs to be £26 billion out of pocket due to belated receipt of funds, and the newspaper cited insolvency trade firm R3 as stating these long-overdue payments had caused one-quarter of UK business insolvencies in the last 12 months. Indeed, the newly-announced trade union on which their report centred listed late payments as one of the core issues – alongside unstable mortgages and other financial concerns – which prompted its formation.
Events like these carry severe implications for just about any UK industry, but their effects have proven especially notable for construction firms. As well as the sector experiencing its fourth consecutive decline in output this July, a new survey published by industry associations has revealed that 63 per cent of construction suppliers are currently experiencing late payments for their public sector projects. Construction News reporter Llewelyn Mullooly says the sector remains particularly vulnerable in this regard due to low profit margins, rising material prices and “lengthy supply chains”, the latter meaning “any delay in payments has a cascading impact throughout the chain”.
How can your business survive the late payments crisis?
Predictably given the scale of the problems at hand, we’re already seeing the government beginning to take steps towards combatting late payments. This autumn will – according to City A.M. – see the introduction of a small business commissioner aimed at tackling these issues, although details on the identity of this new official and their specific remit were still to come at the time of this article’s writing. On the other hand, for those UK firms concerned by the prospect of late payments from international partners based in areas afflicted by Hurricane Harvey, the US’ Internal Revenue Service plans to abate certain penalty notices, meaning companies affected here would be well advised to follow how the story develops.
We here at Touch Financial understand all too well how detrimental an impact late payments can have on the finances of fledgling and large-scale UK businesses alike. Should you require support generating working capital without the worry of these delays affecting your supplier or employee relationship, then we’re here to help. The invoice finance facilities offered by our panel of 30 different funders can enable you to receive a pre-agreed percentage of your invoices within as little as 24 hours, with some funders even willing to take on the burden of chasing up late payments out of your business’ hands and provide bad debt protection.
If you are within the construction sector suffering from the aforementioned challenges, be sure to check out our construction finance articles for further details on how firms like yours can better prepare themselves against funding issues.
Get in touch with our expert team of consultants today to find the funder best suited to your business’ scope and ambitions.