The UK government has launched new measures aimed at tackling the issue of late payment of invoices to small businesses. The announcement on 2 October comes as part of a Cash Flow and Prompt Payment review and includes broadening the powers of the Small Business Commissioner and strengthening the Prompt Payment Code.
Late payment to smaller firms is a stubbornly difficult problem to fix. Unfortunately, the problem is getting worse. According to Xero’s Small Business Index, based on anonymised and aggregated data from hundreds of thousands of small businesses, “In the UK invoices are paid significantly later (8.2 days) than they are in Australia (6.5 days) and New Zealand (6.2 days).” SMEs are still sometimes forced to accept 60, 90 or even 120 day terms from their larger customers.
The result is stark: businesses struggling to stay afloat as cashflows dry up. The stats back that up: the CEBR reported 6700 business closures in Q2 2023 with an estimated 7000 per quarter in 2024. And with a recession forecast due to high borrowing costs, the cost of living crisis etc is only going to make larger companies hang on to cash longer.
It should be said that separate data from the Federation of Small Businesses (FSB) revealed the majority of small businesses experienced a late payment in 2022 – leading to 40% of SMEs applying for credit to manage their cash flow.
The SBC’s own figures underline the scale of the issue: a third of payments to small businesses are late, with the average value of each payment is £6,142. It says 20% of small businesses have run in to cash flow problems due to late payments, and says that if small businesses were paid on time, “This could boost the economy by an estimated £2.5 billion annually.”
Now, though, the problem may be eased slightly by plans to give more powers to the Small Business Commissioner, which will include investigating and publishing reports based on anonymous information. Other measures include providing advice to small businesses on how to negotiate payment terms that better suit them, and highlighting the benefit of going digital.
Businesses will also be encouraged to use digital payment technologies and embed prompt payments as part of their ESG (environmental, social, governance) programmes.
Making sure you’re paid on time is a key business imperative. At Paul Beare Ltd we’re experienced across aspects of accounting, bookkeeping, payroll and cashflow management, so we’re able to help you make sure the flow of cash – the lifeblood of any business – stays healthy.