Billions owed to UK SMEs

53% of SME’s in the UK are owed money from late payments, with some reports estimating that the total outstanding figure is as large as £255 billion.

Late payments cause damage to SMEs

A recent survey conducted by Zurich has found that late payments in the UK are wreaking havoc with SMEs throughout the country. Of the 600 SME owners and decision-makers who were polled, 20% report that their business is owed more than £25,000 in late payments, while 8% are owed a staggering £100,000. Businesses in Sussex, Surrey, Hampshire and Dorset were owed the most in outstanding invoices (£109,000 on average), while those in Scotland were owed the least (£79,000). Meanwhile on the more extreme end, reports estimate that 43,000 unfortunate SMEs in the UK are owed sums totalling as much as £1 million and above.

Unsurprisingly, these unfulfilled payments are having a huge impact on a number of key operations for UK SMEs. In the recent Zurich survey, 41% of respondents felt that the cash flow of their business had been dealt a significant blow by late payers, while 67% agreed that late payments are even forcing some SMEs to completely close down.

Top 5 reported reasons for late payments

  1. No excuse or justifications given
  2. Internal invoice process issues caused delay
  3. The customer extended the payment terms without consent
  4. Invoice was lost or misplaced
  5. Invoice was never received

A BlueHub article suggests that SME owners should consider changing their payment terms in order to get debtors to pay up sooner, rather than later. The article also advises SME owners to send “consistent, well-worded and well-timed reminders” to reduce payment lag. Automating this process reduces workload and increases the speed that invoices are paid. There are now automated invoice reminder apps like Satago, which politley andregularly chase up late payers with automated custom emails.

Should_you_change_your_payment_terms

Time for government to step in

Nearly half of respondents feel that the government is not playing a large enough role in the whole affair, with 49% expressing concern over the lack of support available to mitigate the problems caused by late payments.

Referring to the Chancellor, George Osborne, Jason Eatock, head of SME at Zurich said:

“We have been warned about a ‘cocktail of threats’ to the economy, and small businesses will need all the capital at their disposal to weather this potential storm.

‘In an uncertain economic climate, it is imperative that SMEs receive the support and guidance they need to adequately address the central concerns threatening the viability of their businesses.”

Last year, horror stories of SMEs being bullied out of existence by larger firms who refused to pay on time eventually prompted plans for a Small Business Commissioner. According to the Enterprise Bill of 2015, the commissioner would:

  • Be a point of first contact for small businesses and provide advice and support on how to avoid disputes and how to resolve them
  • Offer access to mediation services to sort out issues quickly and affordably, “at a fraction of the cost of going to court”
  • Investigate complaints over unfair business practices and regularly report its findings

Whilst these plans appear to be a step in the right direction, the problem remains unresolved. In fact, the outstanding bill owed to SMEs continues to soar into the billions, as does the cost SMEs must bear in order to chase up these growing debts.

The role of bookkeepers

ICB Chief Executive, Garry Carter, expressed concern over the recurring issue of late payments in the UK and stated:

“This culture of late payments can be fatal for UK businesses. These days, cloud-based software has sped up the entire payment process, so there is no excuse for large firms to push their luck on payment terms, unless it is purely a case of “because nobody dare push” or “the money is better in our bank.”

“Bookkeepers are a major part of the solution and should fully utilise their credit control function. Sometimes, business owners are reluctant to chase up late payments because they do not want to risk souring their relationship with those who owe them. A firm but polite bookkeeper is the perfect person to chase up clients for end of the month invoices.”

For many debtors, understanding that a qualified finance professional is taking issue with their late payment could set a fire beneath them and act as the perfect impetus for them to face up to their obligations. Bookkeepers should embrace their role as the ‘bad cop!’

ICB is aware that its members often form very close bonds with their SME clients and can play a vital role in resolving the injustice of endemic late payments.  There is no doubt that by chasing up dishonest or lazy debtors, bookkeepers can help to redress the imbalance.