Late payments to SMEs now total £266bn

The level of late payments affecting UK SMEs has reached £266bn, according to research.

The research, based on a survey commissioned by supply chain finance provider Crossflow Payments and conducted by market research firm YouGov, found an average of 15% of the SME sector’s average annual turnover was stuck in the payment chain.

The £266bn figure was calculated by extrapolating that 15% across UK SMEs’ total estimated annual turnover of £1.8tn. It contrasts with a UK government calculation of £26.3bn.

The startlingly high figure comes despite a new UK law requiring large firms to report their payment terms coming into force.

More than half (55%) of SMEs affected by payment delays said they had to wait for 10 or more days after the deadline to receive payment.

The strongest impact of late payments was on potential job creation, with 63% of those suffering late payment saying they would use the missing working capital to expand their team, hiring up to five new staff members.

Based on the estimated 5.5m SMEs in the UK, a potential 3.4m additional jobs could be created.

More than one in five businesses said they would increase marketing and sales budgets, while a similar number said they would boost the salaries of their existing staff.

The study also highlighted that one in 10 businesses had suffered further credit troubles after the EU referendum, experiencing a deterioration of payment terms since the landmark vote.

A further 31% of firms stated they were worried about the potential impact of Brexit negotiations on their business over the next 12 months, while one in five said they were stressed about currency fluctuations.

Crossflow Payment’s chief executive Tony Duggan said SMEs were being affected greatly by uncertainty surrounding Brexit at a time when they should be investing to ensure their future.

“Brexit is increasing the issue of late payments and reducing investment by SMEs at a time when the UK faces economic uncertainty,” he said.

“Delays in receiving payment promptly from customers is acting as a handbrake on SMEs, preventing them from making key investment decisions for the future and ultimately stunting growth.

“In 2017, it should no longer be the case that businesses face such hurdles.”

Crossflow Payments was not the only organisation to recognise late payment issues, with research from the Zurich SME Risk Index last month showing 21% of the 1,000 SMEs surveyed were owed more than £25,000 and 9% were owed more than £100,000, leading to funding gaps that significantly hit their cash flow.

In April the government overhauled company law to force corporate companies to report on payment terms with their suppliers to tackle the issues of late payments.

The new rules require large businesses to report their payment practices, policies and performances on a half-yearly basis and publish them via an online government service. Failure to report will be considered a criminal offence.

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Economy, Procurement