Small Business in Losing Battle With Late Payment

27th April 2018.

New analysis from Xero, the global leader in online accounting software, shows that despite continued pledges and policies to reduce late payments for the nation’s small businesses, over half of invoices were paid late in 2017.

It seems that Goliath is keeping the upper hand this time, as small businesses struggle to convince their customers to pay on time. Since the collapse of construction giant Carillion earlier in the year, larger businesses have finally been confronted with multitude cases of supply-chain bullying. Many of the late payment initiatives that the government has set up have failed because small businesses have exercised too much caution in speaking up against them.

This new data is drawn from hundreds of thousands of small businesses that process their invoices through the accounting software. The company’s Small Business Insights has revealed that small businesses experienced the tightest cash-flow squeeze in the first quarter of the year, with only 45 percent starting the New Year cash flow positive in 2017.

If small businesses are going to have a happier 2018 they need to become more confident. This can be achieved by fighting a little harder, and from asking for help. While the government continues to appoint ineffectual commissioners and ministers, credit management companies can help small business finances directly. Late payers aren’t in a rush to change their behaviour, but businesses can adopt preventive measures to ensure they don’t encounter bad payers a second time.

At the Credit Protection Association, the collaboration between our debt recovery and credit management products allow for a positive cash flow, while credit checks are conducted to keep it that way.

According to Xero’s research, over the past year, 30-day invoices are on average paid after 40 days, nationwide. Yet further analysis of FTSE 350 companies show that on average they pay their invoices after 46 days, a full 6 days longer than smaller firms.

Xero singled out a ‘watch list’ of consistently late paying sectors. Topping the list were Food Producers (averaging 60 days), Construction and Materials (averaging 57 days), and Household Goods (averaging 53 days).

FTSE 350 companies in the Pharmaceuticals and Biotechnology sector were revealed to pay the most inconsistently, with invoices being paid an average of 47 days in 2017, a low of 37 days in September 2017 and a high of 68 days in June 2017.

The Small Business Commissioner Paul Uppal commented: “Small businesses are crucial to the health of our economy so it is vital that they feel supported in all areas, but particularly in the fight against late payments. My role as Commissioner exists to help small businesses get paid on time, and while the Government works on measures to address the late payment epidemic, businesses should not be afraid to come to us for help. Now is the time to make Britain the best place for entrepreneurs to flourish.”

Small businesses are the lifeblood of the economy, but they are also the most vulnerable. One late payment can have a detrimental effect on a business where the revenue is limited. Despite various attempts by the government and various authority groups to redeem payment behaviour, late payers are reluctant to change their ways. Bad behaviour will no doubt continue until a tougher approach is adopted.

Of course, late payment is a problem that affects businesses of any size. Unfortunately, it is the small and medium-sized firms that are hit the hardest. Vulnerability does not have to preempt helplessness, however, and conducting simple credit checks can protect a small business’ cash flow. Preventivie measures is a good place to start and can lead to a renewed business confidence and even expansion opportunities.

At the Credit Protection Association, we have dealt with the repercussions of late payment for years. Not only have we advised our members who have suffered from it, but also those who are self-confessed late payers themselves. Our credit management services will credit check suppliers and customers, as well as utilise our company directories to ensure the only payers our members work for, are good. Our debt recovery services will also free up cash flow, providing our members with the financial freedom to not only pay any residual debt but also explore opportunities for expansion or investment.

While our team frees up cash flow and spring cleans finances, our LPC team also boasts a special scheme using a little-used legislation that helps business owners realise a hidden source of cash and unlock hidden potential within their business.

Whether your small, large or somewhere in the middle, CPA can help dispel those late payers.