Small Business late payment costing SMEs £1.6Bn

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small business late payment costing SMEs £1.6bn

Small Business Late Payment and the cost of such has more than doubled in the past two years, reaching £1.6 billion at the end of 2023, according to a report by Xero.

The latest quarterly data shows small firms were paid, on average, 6.1 days late during the last three months of 2023. This figure shows no signs of improving, with the average payment still received over a working week beyond the agreed terms.

The current trading conditions are being added to by the growing cost of small business late payment for SMEs. Xero revealed that the cost of small business late payment to UK small businesses rose to an estimated £1.6 billion in 2023.

This figure, which is more than double the 2021 estimate, reflects the cost to the small business of not having access to the unpaid invoice funds and is in addition to what they are owed. The increase is largely due to rising interest rates and an increase in late payment times for those using small business suppliers.

The research showed that small firms continue to face a challenging macroeconomic environment, as sales growth in the December festive period hit a three-year low.

Xero’s data revealed that small business sales revenue fell 1% year-on-year (y/y) in December – the first month of negative y/y growth since February 2021 – at a time when small businesses usually expect bumper sales.

Across the final quarter of the year, sales grew just 1.6% y/y compared to a 9.7% increase in 2022, showing how weak festive trading was.

Retail sector showing weak results

The weakest results were seen in the retail sector, where sales fell 1.7% y/y in November and 5.3% y/y in December (-2.2% y/y for the full quarter), when small retailers usually expect buoyant figures. This is the first period of consecutive monthly declines in retail spending since April and May 2020.

Scottish small business had a more encouraging sales result, bucking the national trend with a 4.1% y/y growth in the December quarter – the fourth consecutive quarter it has led the gains.

In contrast, London-based firms saw the smallest sales increase over the last quarter (0.9% y/y), despite typically being a strong performing region.

Alex von Schirmeister, Managing Director UK & Emerging Markets, Xero, said “Negative sales growth over the vital holiday period, as the UK officially falls into a recession, shows how difficult the situation is for small business, especially those in retail.

“The cost of late payments to small businesses has risen to an estimated £1.6 billion. That’s on top of what they are owed for their products and services. Let’s put an end to this unacceptable practice, which is drowning small firms, and call late payments what they are: ‘unapproved debt.’

That means holding big businesses accountable, so their smaller suppliers receive the money they are owed, on time.”

What can be done about Small Business Late payment?

Small Business Late payment is a major issue for SMEs, especially in the current economic climate. Prevention is certainly better than a cure

Another solution is for small businesses to take matters into their own hands and implement stricter credit control policies.

This includes conducting thorough credit checks on potential customers before offering them credit terms, as well as setting clear payment terms and following up on overdue payments promptly.

Small Business Debt Recovery

If a small business has exhausted all options for recovering late payments on their own, there are still other avenues to explore.

One option is to seek the help of a professional Business debt recovery agency, who can assist in retrieving unpaid invoices and negotiating with customers on your behalf. This is both cost effective and time saving.

Another option is to take legal action through the courts. This can be a lengthy and costly process, but it may be necessary if all other attempts at recovering payment have failed.

Action needs to be taken to combat Small Business late payment and invoices won’t pay themselves.

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