More small businesses facing insolvency despite fall in ‘zombie companies’
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£16.9bn owed: how late payments are damaging UK micro-businesses

Micro-businesses – companies comprising of one to 10 employees - are owed a whopping £16.9 billion in outstanding payments. The effect of this shocking statistic on cash flow and resources is having a huge impact on growth within this sector. And with micro-businesses said to comprise 96 percent of all UK firms, the knock-on effect of late payments to the British economy is likely to be devastating.

A UK-wide culture of late payment

According to a survey of 250 micro-businesses, 32% of micro-business owners have been forced to take out loans or credit to cover costs such as paying suppliers or employees’ salaries. The reason? Larger firms dragging their feet when it comes to paying on time, which in turn affects cash flow.

The research, which was carried out by accounting software company Intuit Quickbooks, also found that micro-businesses were spending 19 days a year on average chasing unpaid invoices. When you consider such companies have a small number of employees, this can eat up a huge chunk of limited resources – and therefore cut into potential profits.

The Telegraph's enterprise editor, Rebecca Burn-Callander, explains further: “Late payment doesn’t just affect cash flow, it affects a small firm’s appetite for investment and willingness to hire. It also wastes people’s valuable time. A typical small business spends 130 hours a year chasing invoices. Imagine if those hours could be spent growing the venture instead.”

The less tangible effects of late payments

While the consequences of late payments can be measured in loss of pounds and profit, there is also a less tangible cost when it comes to the entrepreneurial spirit.

Intuit managing director, Richard Preece believes late payments are stopping entrepreneurs focussing on what really matters.

He adds: “When you’re putting out fires and jumping over hurdles on a daily basis, you don’t need the distraction of worrying about whether you’ve been paid in a timely manner for your products or services.”

Hefty court fees

A recent development which may worsen the situation is the Ministry of Justice’s plans to charge a five percent fee on any companies turning to the courts to fight late payments and other debts. The Bar Council has warned that this could detrimentally – and disproportionately- affect small companies, who will most likely end up writing off outstanding invoices rather than risk paying court fees potentially as high as £10,000. With research from Worldpay showing that around £2.4 billion is already being written off annually by micro-businesses, this is a worrying development.

Could e-invoices help?

According to the study by Inuit, only 36% of the micro-businesses surveyed issued e-invoices via email. Indeed, the majority still used traditional paper invoices via post, some even waiting up to a whole month after the work was completed to invoice clients. Improving and speeding up the invoicing process, and making payments simple and straightforward could be crucial to stopping late payments from happening in the first place. Preece explains:

“This isn’t just about late payments, it’s about expecting and facilitating payments much more quickly, and the impact this can have on the millions of very small firms across the UK. There’s major potential to dramatically improve micro businesses’ cash flow and save valuable time by making it easier for their customers to pay – particularly when the vast majority are more than happy to settle up immediately themselves when dealing with small businesses.”

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