Better payment practice could have saved 50,000 small businesses

If payments had been made on time and as promised, 50,000 business deaths could have been avoided, a new study reveals.

The Federation of Small Businesses (FSB) has today published a comprehensive report looking at the way small firms and the wider economy are affected by poor payment practice.

The report, ‘Time to Act: The economic impact of poor payment practice’, finds that existing policy interventions have had no discernible effect on tackling problems around the UK’s poor payment culture in the last 5 years. Small businesses report that, on average, 30 per cent of payments are typically late compared with 28 per cent in 2011.

The impact on small businesses can be devastating. The report shows that 37 per cent have run into cash flow difficulties, 30 per cent have been forced to use an overdraft and 20 per cent say late payment has hit profits.

At the extreme end, late payments and resulting cash flow difficulties have caused businesses to fail. In 2014, if payments had been made on time and as promised, 50,000 business deaths could have been avoided, growing the UK economy by £2.5 billion – a vital uplift to UK GDP just as business confidence dips amid fears of a weakening domestic economy.

Mike Cherry, national chairman at the Federation of Small Businesses, thinks that the UK now risks having a business culture where it is acceptable to have bad payment practice and not to pay SMEs on time.

Cherry adds, ‘Based on an imbalance of power between large companies and their small suppliers, this now has a chilling effect right across the economy. It’s distressing to hear from our members that in 2016 the average value of each late payment now stands at £6,142.

‘Small businesses have to run a tight ship with their cash flow, and as they struggle with increasing business costs on one hand and an uncertain domestic economy on the other. They should not also have to struggle with the stress, time and money required to chase overdue payments from corporate giants.’

Further reading on unpaid invoices

Related Topics

Leave a comment