Five Ways the Economy is Punishing Small Businesses

There were 5.7 million small and medium size businesses in the UK in 2017, making up 99% of all businesses. Yet, these businesses are facing an ongoing problem: late invoice payments. On average, 62% of small business invoices are now paid once already overdue.

This delayed payment has a huge impact on the finances of small businesses, putting jobs and businesses at risk.

  • 89% of public sector suppliers have been paid late, putting up to 3.5 million jobs at risk every year.
  • 50,000 small and medium size businesses close each year because of late invoice payment
  • 99% of businesses in the UK are SME’s and all of these are at risk from invoice late payment
  • SME’s are owed £26 billion in overdue payments
  • Northern Ireland paid 93% of invoices late last year

SME’s are owed £44.6 billion in invoice late payments

According to a recent study, SME’s in the UK are owed £44.6 billion in late invoice payments. Despite the recommended payment period being 30 days, yet average payment takes an additional 30 days.
It is thought that if small businesses were paid on time, the economy could be boosted by as much as £2.5 billion.

Small businesses are more greatly affected by late payments as they may not have the ability to pull together large sums in the event of late payment.

For example, if a small business turns over £1.2 million a year and sales are £100,000 a month, with the recommended payment terms of 30 days and everyone pays within that deadline then the company needs to invest £100,000 in working capital. However, late payments of just 15 days means the business needs an additional investment of £50,000.

50,000 SME’s close each year because of late invoice payments

There are 5.7 million SME’s in the UK, 23% of which are in the public sector equalling 1,311,000 small businesses in the public sector. Of this 89% have been paid late, which equals 1,179,000 businesses. The average number of employees in SME’s in the UK is 3, meaning 3,539,700 jobs are at risk.

The Federation of Small Businesses estimates that 50,000 businesses close each year because of late invoice payment.

With 16.1 million people currently employed by SME’s, making up 60% of private sector employment in the UK this is a very real concern.

Annual SME turnover in 2017 was £1.9 trillion, making up 51% of private sector turnover in the UK.
The level of late payments varies between regions, with Northern Ireland the capital of late payments with 93% of invoices paid late. East Anglia and East Midlands also paid invoices late more than on time. Even the fastest invoice payers, Scotland, only managed to settle 53% of invoices on time.

The worst three locations for invoice payments in the UK

70% of Medium sized SME’s rely on finance

In the Small Business Finance Report, the British Business Bank found that despite 68% of small business owners main aim being to pay down debt, 40% are still using external debt.

With SME’s employing 16.1 million people in the UK, which is 60% of private sector employment, it is a concern that SME’s are often relying on debt.

60% of provate sector employees are employed by SMEs

Of those who are using debt, 68% use the money to acquire working capital or improve cash flow, rather than investing in the business.

Top reasons SMEs applied for external finance

9 out of 10 public sector suppliers have been paid late

The Federation of Small Businesses has found that nine out of ten public sector suppliers have been paid late.
Local governments and public infrastructure projects pay just 9% of SME suppliers within the agree payment deadline.

91% of the supplies to public sector infrastructure projects are paid late

The recent collapse of Carillion has brought attention to public sector delays in paying invoices. Current figures from the National Audit Office suggest that the collapse of the business will cost UK taxpayers £148 million.

Since its collapse many have commented on the haphazard finances of the company, with their standard invoice payment taking 130 days. Many look on this as the first sign the company was having financial problems and the collapse has left hundreds of suppliers out of pocket.

Despite the 2017 government initiative to have the biggest companies publicise how long it took on average to pay invoices, businesses aren’t required to make improvements. Of those who reported their average payment times, just 29% settled their invoices within the suggested 30 days.

A quarter of NHS trusts routinely pay suppliers late

Contract regulations mean public bodies are required to pay invoices in 30 days. NHS Trusts should pay at least 95% of their non-NHS invoices in this time frame.

Yet 1 in 4 NHS trusts routinely pay invoices late, with some even reporting that they have had their accounts stopped.

Invoice payment appears to be getting worse, with drops across 74 of the Trusts.