UK microbusinesses spent almost 10 weeks working on financial admin last year, according to a new report.

In Make Business Simple, Starling Bank surveyed 1,000 UK microbusinesses. The average firm clocked up 79 hours of labour a week, 15 of which go on finance admin tasks – a considerable 19p per cent chunk of the total time. Smaller companies are disproportionately affected, with almost a third of sole traders (31 per cent) spending a third of their time on financial admin and companies with between one and four employees spending 25 per cent of their time in that area.

More than a quarter (27 per cent) of microbusinesses state that they spend too much time on financial admin, rising to almost half (46 per cent) for firms with between five and nine workers. One fifth of business owners (21 per cent) said that if they could reduce time spent on finances, they would divert it towards sales.

Respondents also said that the most time-consuming aspect of running a business was accounting. It takes micro-firms 1.7 hours each week, equating to more than one week a year spent doing the books. Accounting was viewed as the most stressful part of running a business, being more likely to eat into downtime than any other task. A third (32 per cent) said that this was the case.

Commenting on the report, one Starling Business Account customer, photographer Aina Gomez said: “I didn’t get into business to do finance-related admin, but without it, you are doomed. I’m still learning.

“I’ve purposely put myself through some training, but I can still say that this is the worst part of running a business. However, I realise how key of an issue it is and keep pushing to learn how to do it better.”

4 ways to protect your small business against late payments

Poor payment practices continue to be a widespread issue, affecting business’ ability to handle their finances. In 2018, Dun & Bradstreet found that small businesses were owed an average of £80,141, nearly a quarter more than in 2017 and worryingly, 17 per cent were owed between £100,000 and £500,000.

These numbers potentially have meaningful consequences for businesses and the wider economy. Overdue invoices can dramatically impact the cash flow of SMEs, as many of these companies lack the deep financial reserves or access to capital which can bridge the gap in payments for large businesses.

Essentially, today’s income is tomorrow’s payroll.

Any delay can have a cascading effect that strains the finances of the supplier and keeps their own vendors from getting paid on time. In fact, 31 per cent of respondents said that cash flow difficulties were the most serious consequence of late payments and 28 per cent admitted that they’ve had to delay payments to their suppliers as a result. A quarter have had to cease the supply of goods and services to customers who didn’t pay on time, and potentially lose a business relationship.

‘48pc of SMEs say that overdue payments put their business at risk of failure’

Perhaps the most disturbing figure uncovered was that 48 per cent of SMEs surveyed say that overdue payments put their business at risk of failure.

Late payments can have severe consequences for business owners themselves, as 15 per cent of those surveyed said they’ve used their own savings or assets to cover shortfalls. It’s important to think of what this means for the broader economy, as money intended for other purchases – including reinvestment in the business – is siphoned off due to irresponsible customers.

It’s tempting to think of these late-paying customers as a few bad actors, but the sheer size of the problem suggests otherwise. Research indicates that both large companies and fellow small and medium-sized enterprises allow due dates to come and go. Even the Government has admitted that it fails to pay many vendors on time, a frustrating fact for those looking for a policy solution to the problem of late payments.

The Government has made positive moves to tackle the issue, including the Prompt Payment Code and setting out the intention to improve its own payments performance. In October 2018 it announced proposals to empower trade bodies, such as the Federation of Small Businesses, to highlight the worst public-sector offenders. Even so, two thirds of small business leaders surveyed believe the Government could be doing more to support SMEs.

It’s unclear if private lenders are doing all they could to alleviate cash flow concerns. Only 42 per cent of respondents said they received help from banks, a figure that’s fallen by nearly a fifth since 2017. This could be due to fewer businesses applying for loans or SMEs may be seeking alternative funding options.

If there’s any silver lining here, it’s that there could be a larger role for traditional lenders to play if the problem of late payments persists.

It’s evident that potential Government and financial sector solutions are of little comfort to business owners who are struggling to collect late payments today.

In order to be proactive, Tim Vine of Dun & Bradstreet suggests taking the following steps to protect your small business against late payments:

Take advantage of business data solutions

In order to protect your small business against late payments there are tools available that provide insight into payment practices, outstanding debts, liens, and other indicators of a company’s credibility and ability or willingness to pay on time

Explore alternative lending arrangements

As the issue of late payments increases, more lenders are often willing to extend financial solutions to compensate for delays. Single-invoice financing can also provide a back-up option to aid cash flow

Manage cash flow effectively

However, rejigging lending arrangements not being a sustainable way to operate, it’s crucial for small businesses to manage their cash flow by having clear invoices, a partial payment upfront policy, and creating an incoming/outgoing budget. This will help SMEs manage any deficit which might be caused by late payments – and then if small businesses meet a situation where they do require loan, a positive cash flow makes it much easier to get one.

Define a credit policy

Small businesses should assign every vendor with a set credit limit based on their previous behaviour and check each vendor’s commercial credit file. By doing so before extending credit, it can also help SMEs to avoid the risk of working with a company which pays slowly and can help them decide what credit limit to extend.

As we get closer to the Brexit deadline of 31 January 2020, this half of the year is likely to be one of change for UK businesses big and small. Learning how to protect your small business against late payments is one area where the Government, business and technology can bring about positive change amid uncertainty.

Tim Vine is European head of finance solutions at Dun & Bradstreet

Further reading

SMEs say late payments are a greater issue than they were a year ago