Payment delays are preventing small businesses from expanding

The Small Business Commissioner (SBC) has warned that late payments are blocking the growth of small businesses. In an address to ICAEW, the SBC said that payment delays are preventing small businesses from expanding and creating jobs.

In her address, Liz Barclay noted that 5.7 million small businesses employ 60% of the UK’s workforce. We’ve said before how SMEs are the lifeblood of British business. Small businesses that survive on small margins can find themselves hit hard by late payments, which threaten small firms’ continued existence and stifle economic growth. Late payments can mean small businesses having to lay off staff and make cuts in other areas like marketing and new product development.

However, Liz Barclay’s outlook in her address is refreshingly positive. Speaking as a small business owner herself, Liz stated “We carry the risks and love the flexibility. We can lie awake at 3 am and worry if we want to. We love what we do and fail to attend to the business admin. We have ideas, innovate, and create jobs. We could do a lot better, and help the economy grow much faster if we paid more attention to the cash flow and the business planning, and could persuade lenders to back us and fund growth.”

One of the main problems small businesses face is cash flow. When a firm doesn’t have enough incoming funds to cover its outgoing costs, it’s in the red. This can be due to delayed payments from customers. When a small business is waiting for payment from a customer, it can’t pay its own bills on time, which can cause a huge knock-on effect in the supply chain.

In an effort to tackle the widespread issue of late payments, Liz implored her audience of accountants from across the UK to help. She said, “The most important thing [small businesses] need is to get paid quickly by their bigger customers, for what they do. 

“Why are they still waiting 2, 3, 4 even 12 months to get paid? We need that money in the accounts of the 5.7 million small businesses within 30 days. 

“Late payments, poor payments practices and extended payment terms are existential. I need your help to grow confident small firms. They are the talent of the UK. They need the confidence to negotiate better payment terms and get paid fairly so they can invest and grow. The European Commission found that in the UK, 30 per cent of businesses indicated that late payment had links to subsequent redundancies, and outstanding invoices could pay for businesses to hire more than two million people.

“The longer companies wait for payment, the lower the level of investment they make. Research shows a month delay in being paid reduces capital spend by 1.2 per cent, and could lead to reduced profitability for as long as five years thereafter. There is clear evidence that late payment is linked to an inability to access affordable finance. More than half think they’d be able to grow faster if they spent less time on the financial side of the business.

“I need your help to get big businesses to commit to paying their small suppliers within 30 days. It’s the right thing to do; it is ethical business practice, and investors and talented and skilled employees will want to work with them. I need your help to make payment practices a priority for Boards, and perhaps even persuade your clients to sign up to the voluntary Prompt Payment Code.

“The economic recovery is being held back by poor payments.”

And we all felt like cheering in the My Debt Recovery office when we read Liz’s address. We have been passionate about helping small businesses get paid since we began and it has been disheartening to see the trajectory of late payments over the last few years and so to have a Small Business Commissioner in post who is also prioritising the issue is fundamental to changing the way the UK economy is currently operating.

We are ready and waiting to help serve the 5.7 million small businesses across the UK and get their money back where it belongs. Our team of experts are here to take on your commercial debt recovery and take away the headache of chasing your clients for payments. Get in touch today.