Research from Hitachi Capital UK has found that late payments are costing SMEs an estimated £51.5bn (€56.7bn).
A survey of 1,000 SME owners found that almost a third of SMEs (31%) have experienced late payments costing their business at least £10,000 in the last 12 months.
The impact of late payments on the long-term health of the UK economy was projected from this survey to have cost UK SMEs at least £51.5bn in the last year.
Over a quarter of SMEs (27%) have experienced a profit squeeze because of late payments, and 12% have had to defer staff pay, according to Hitachi equating to an estimated 1.95m UK employees that have been left empty-handed on payday.
Around 40% of respondents have been forced to use their own money to address cash flow gaps in their business. The majority of these respondents (80%) have invested personal savings to keep their business afloat or operational.
Nearly three quarters of SMEs (74%) have had a customer fail to pay during their agreed terms at least once during the last 12 months, and 34% of SMEs report customers using their position to delay or reduce payment.
With 21% of SMEs also turning down a contract because a customer was known to be a bad payer or offering unfair payment terms, the use of external funding options is an increasing necessity to offer a safety net when business is stalling. Today’s research indicates that awareness of potential solutions such as invoice finance remain too low.
Robert Gordon, chief executive officer of Hitachi Capital UK, said: “An imbalance of power between clients and suppliers, often driven by larger players abusing their position, has led to a widespread late payment culture that is damaging UK SMEs. As our research has shown, if we let this go unchecked, huge numbers of businesses will continue to experience cash flow pressures at a time of wider economic uncertainty.
“This has ramifications not only for SMEs, but for entire supply chains and a fair, competitive and supportive business environment is critical for the country’s wider economic success. It’s imperative that we not only acknowledge this issue and crack down on late payments, but also take practical steps to ensure businesses are given the required support and penalties are put in place for the worst offenders.”
Government late payment rules that will affect private businesses applying for public contracts are set to come into force from the 1 September onwards. Of those surveyed, over two-thirds of SMEs (68%) would support legislation making it illegal to miss a payment deadline, with over half of respondents (57%) spending nearly a day a week chasing outstanding invoices, suggesting that late payments are contributing to the productivity deficit within the UK economy.
The South East was the region with the highest proportion of SMEs reporting financial issues caused by late payments, representing 18% of the total number of responses, followed by Greater London at 16%.
Andy Dodd, managing director of Hitachi Capital Invoice Finance, said: “As one of the UK’s leading finance providers, we understand first-hand the impact that late payment can have. Many SMEs struggle to maintain liquidity and this remains an underlying threat to their personal finances and ultimately the survival of their businesses.
“Fortunately, there are a number of solutions available to small businesses. Firstly Invoice Finance which provides an immediate advance, normally of up to 85% of the invoice value, to provide instantaneous cashflow injection. Secondly use a good credit control provider perhaps aligned to Invoice Finance, it’s an area that frequently neglected, but should be front-of-mind amongst SMEs.”