New research on the cost of late payments
14th October 2019.
James Salmon, Operations Director.
A survey by Hitachi Capital Business Finance looks at the overall cost to SMEs of late payments .
The findings show a huge cost – both financial and personal for small business owners and their employees.
The research found found the proportion of SMEs that were taking legal action chasing late payments from clients had grown from 31% to 40% over the past year.
A fifth of SME owners did not pay themselves when they were left with unpaid invoices.
Over 60% of SMEs are affected by late payments according to Hitachi, with 35% having to seek short term loans to stay afloat, it said.
Over three quarters (76%) of freelancers have experienced mental health issues as a result of late paying clients in the last 12 months, according to new research.
In its latest report Late Payments: The Cost to Business and Our Health, Hitachi Capital UK has investigated the mental health impact of late payments on the UK’s SMEs and freelancers. The research finds that there is an urgent need for action to alleviate the emotional and financial burden of the issue, acknowledged by Government as an inhibitor to the growth of the UK economy.
From a sample of 1,000 SMEs and freelancers based in the UK, a sizeable 11% of surveyed freelancers have been diagnosed with a clinical condition due to clients failing to pay invoices on time. This figure equates to over 200,000 freelance employees in the UK₂, with the most common conditions anxiety (61%), stress (45%) insomnia (41%) and depression (27%).
In addition to highlighting the harmful effects of late payments, Hitachi Capital UK’s research outlines the prevalence of late-paying clients for freelance businesses. Two-thirds (65%) of respondents have experienced at least one instance where a client has failed to pay within an agreed payment period.
The research has exposed the drain of late payments on productivity and resource among freelancers, who are now spending an average of 77 minutes each day chasing clients. Almost half (49%) of freelancers are spending 1-4 hours each day chasing late payments, losing valuable time to grow their business and service existing customers.
The majority of freelancers surveyed were unfamiliar with the preventative measures available to them, with over a third (35%) unaware that interest can be claimed on late payments from clients.
Late Payments are a huge drain on business liquidity
The research found that almost a third of SMEs (31%) have experienced late payments costing their business at least £10,000 in the last 12 months. Looking at the Uk as a whole, late payments drain SMEs of almost £51.5 billion each year. These funds could otherwise have gone into investment, growth, staff recruitment and retention or R&D.
Ultimately, the research underlines how late payments are a drain on SMEs’ productivity.
Late payments holding SMEs to ransom
The research found an imbalance of power between clients and suppliers, often driven by larger players abusing their position, leading to a widespread late payment culture that is damaging SMEs.
Nearly three quarters of SMEs (74%) have had a customer fail to pay on the agreed terms at least once during the last 12 months, and 34% of SMEs report customers using their own negotiating position to delay or reduce payment.
Late payments causing critical cash flow problems
The research shows over a quarter of SMEs (27%) have experienced a margin squeeze because of late payments, and 12% have needed to pay staff late because of the choke on cashflow.
The findings suggest an estimated 1.95 million UK employees have had a delay to their payday because late payments have hit their employer.
Around 40% of business owners to the research said that they have been forced into their own pockets to address cash flow gaps in their business.
Late payments costing valuable time and reducing productivity
More than half (57%) of SMEs involved in the research spent at least an hour every day chasing late payments with an average of 84 minutes.
Even operating on the conservative assumption that businesses work a 7.5-hour day, this figure means that SME decision makers and freelancers are spending almost a fifth of their time at work (17%) simply chasing money.
Late payments are damaging mental health
Perhaps more worryingly than any of the financial affects above, more than three quarters (76%) of freelancers who responded to the survey say that being paid late has had a detrimental impact on their mental health.
Anxiety, stress, insomnia and depression have all been identified as the most prevalent clinical conditions affecting freelancers. The knock-on effects can be huge – the Organisation for Economic Co-Operation and Development (OECD) estimated the costs of mental health treatment, social support and losses to the economy from people unable to work, at a staggering £94bn per year.
The research has identified late payments as just one of the contributors in a complicated array of social issues .
Do you sell on credit?
With pressures on the cash flow it is essential that you stay on top of the credit limits you grant customers and watch carefully for any late payments.
Those customers will look for the easiest option to boost their cash-flow. Don’t let it be you.
You can’t just assume your customers can and will pay you eventually, no matter how big their name is.
It is essential to have credit management systems in place to monitor and check your customers credit worthiness.
It is also best practice to use a trusted third party like CPA to make sure you are paid on time by customers, no matter how good a name they have.
About CPA
The Credit Protection Association can help!
Formed in 1914, CPA has been providing credit management services to SMEs for over 100 years.
At the Credit Protection Association, we provide first class credit information that can help you avoid being over extended to customers who are at risk. Our monitoring service can flag up warning signs long before the end, giving you the chance to adjust and reduce your exposure. We provide recommended credit limits and credit scores on a traffic light system and can help you set appropriate credit policies for your customers.
We regularly publish lists of the latest insolvencies but by then it is too late. Our credit reports however predict approximately 96% of company insolvencies long before they arrive.
Companies in trouble usually have very bad cash flow and they try to deal with it by delaying payment to their suppliers, increasing your exposure to them.
If you supply on credit, help us help you identify the risks.
Why use a third party collector?
As a third party collector, we can also get your payments prioritised over those who are not as hot on collections. When you customer receives a letter from the Credit Protection Association regarding their outstanding account, they are going to want to get that resolved as a priority. Our overdue account recovery service can get your unpaid invoices to the top of their “to do” list and get your invoice paid.
Over the years we have collected billions in overdue invoices for our customers.
Our debt recovery and credit management services give our members the financial freedom needed to grow and prosper, while our new Late Payment Compensation department could unlock hidden potential and offer the compensation needed to springboard your business to success.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Ready to speak to an advisor?
For help or advice on credit management, entirely without obligation.
Call us today
0330 053 9263
CPA is passionate about late payment
The Credit Protection Association has been protecting smaller firms against poor payment practices for over 100 years.
We are extremely passionate about breaking the late payment culture that holds back the UK economy and threatens many SMEs with cash flow difficulties being the single biggest killer of Britain’s small businesses.
If you were regularly paid late we can help. Those former customers used you to boost their own cashflow, regularly paying you late.
As a result you had extra costs, you had the distraction of having to chase payment, you had opportunity costs because your capital was tied up in their late invoices.
Under little used legislation, you are entitled to compensation for those late payments.
Now you can boost your own cash-flow.
CPA can help unearth the those hidden treasures.
We have the technology to reveal the compensation you are due and we have the extensive experience and expertise to then turn those claims into cash.
Yes, CPA can help you boost your business cash-flow.
Don’t let your bankers control you, contact CPA today.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Do you realise you could be sitting on a fortune?
Late payments often result in a cash flow crunch and leave SMEs in need of a cash injection.
If you sold B2B on credit then there may be a hidden source of capital you can call on.
If you fancy an bit of extra cash in your business, rather than jumping through hoops with your bank, you could look to uncover the resources from an unexpected source within your own business.
Not many are aware but there could be a hidden fortune within your business, sitting there, just waiting to be uncovered and released.
We can help you uncover the pile of gold, you didn’t even know you were sitting on.
If you trade with other businesses and were often paid late then you could be entitled to significant compensation.
Under little known and under-utilised legislation your business could be due huge amounts in compensation that you didn’t even know about.
Let’s be clear – this is not a way to weaken any customer relationships you value. It is one that identifies who’s been paying late and then recover the potentially significant sums in compensation using Late Payment Legislation from businesses where the relationship has already ended.
You can pick and choose who you want us to follow up – but once we’ve agreed which companies you’d like to pursue compensation from it’s a fast process and there’s no financial outlay to you whatsoever. My team at CPA put its expertise to work to recover the compensation due and fight late payment culture.
That compensation could provide the cash boost your business needed.
But don’t delay, that compensation evaporates if not claimed within six years of the late payment.
How can CPA help?
CPA has developed a unique technology to dig into your accounting records and discover the cash injection you are due by means of compensation. The software does all the hard work. Our software interacts over the cloud with over 300 different software packages, working directly with your accounts package, just so long as it’s stored on a computer.
We recognise that most companies do not have the resources to spend time on the identification and calculation of Late Payment Compensation. Our service can produce an Analyses within just a few days with (usually) less than 30 mins of co-operation from our clients. We work directly with over 300 accounting packages but can also work with bespoke accounts packages. Indeed, speed is essential as the oldest invoices may fall foul of the 6-year time limit.
Once the Sales Ledger Analyses is made available to clients, all that is required is that management decide which commercially sensitive ex-customers to remove from the list and return it to us.
CPA then uses its years of collection experience to explain and recover the Late Payment Compensation Claims. Clients do not handle any part of the recovery process as our team will take all communications from the companies against who the claims has been made. Often, it’s simply a case of explaining the legislation, sometimes we have to go all the way and enforce the legislation through the courts.
The result is that we are realising clients’ claims worth tens and sometimes hundreds of thousands of pounds which, of course, is pure net profit. You may also be among the recipients of “hundreds of thousands of pounds” should you elect to take advantage of our services.
We do the work, you receive the cash.
If you have supplied goods and services to businesses on credit and were regularly paid late then you could be due significant sums in late payment compensation.
We are talking to companies and unearthing claims in the hundreds of thousands from former business customers who paid them late. Large business customers who abused their power to inflict unfair and sometimes illegal payment practices.
We are helping business owners who are looking to boost the returns from their business before they retire. We are helping businesses who have lost major clients after years of loyal service to get properly compensated for systematic late payment. We are helping companies that were looking to close down, who looked insolvent and finding that cash injection they need to avoid insolvency.
Those former clients who regularly paid you late can finally be made to pay.
Ready to speak to an advisor?
For help or advice on credit management, entirely without obligation.
Call us today
0330 053 9263
The Credit Protection Association is a credit management company established in 1914. If you supply goods or services on credit then we can help you!
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections