The majority of UK firms have experienced suppliers refusing to do business with them because of late payments, according to a survey.
The survey by Ivalua found six in 10 (59%) UK businesses said suppliers had terminated their relationships with them due to repeated late payments, and 62% said paying suppliers late had significantly damaged relationships.
Two-thirds of businesses (67%) feared a “global cashflow crisis” would occur if firms continue to pay late.
Stephen Carter, director of payments strategy at Ivalua, said: “Similar to when Covid-19 hit, and now with rising energy bills, the financial strain businesses and suppliers are under means we are facing the risk of another cashflow crisis. Timely payments are critical to gain favour with suppliers, helping to open the door to better collaboration.”
The study found a third (35%) of businesses had a “severe lack of visibility” into payments, compounded by 58% reporting a disconnect between procurement and finance teams, making it hard to ensure suppliers are paid on time.
This lack of visibility created further problems, with the biggest being an increased risk of fraud (64%), being unable to use payments strategically (50%), and an inability to implement milestone or staged payments (47%).
Carter continued: “As businesses across all industries struggle with rising bills, it’s vital that they work to improve visibility into supplier payments and drive operational efficiencies. Using payments strategically and maintaining a collaborative relationship with suppliers will help businesses to manage a cashflow crisis, even as supply chains come under increasing pressure.”
Separate research by the Federation of Small Businesses (FSB) found more than half (54%) of small businesses said cashflow woes in the third quarter were “compounded” by late payments. More than a quarter (27%) said late payments were becoming an increasing problem, up from 22% in quarter two.
Martin McTague, national chair of the FSB, said: “The anti-growth late payment culture is a block on investment and economic recovery. If the UK government is serious about going for growth, addressing this pernicious problem should be high on the urgent to-do list.”
The worst affected sectors were manufacturing (67%), professional, scientific and technical activities (65%), and construction (64%).
The UK government has said suppliers can be barred from public contracts over late payment while it has been proposed that the small business commissioner is given the power to issue fines for it.
McTague called for greater scrutiny of payment practices and said firms with a history of late payments should be prevented from winning public tenders.
“Audit committees of big corporates must be made accountable for payment practices. Meanwhile, ministers must double down on blacklisting big businesses which treat their smaller suppliers and contractors badly from landing lucrative taxpayer-funded contracts.”
He said there is an “acute need” for ministers to gain greater value for money amid the current economic crisis, and said “giving more public sector contracts to smaller businesses should also be prioritised”.
McTague’s comments come as analysis found only one pound in five of public procurement spend is currently going towards SMEs, which is “significantly” behind government targets to spend a third of public spending with small businesses.
“Giving more public sector contracts to smaller businesses should also be prioritised, at a time when there is an acute need to get value-for-money for taxpayers. Widening competition in public procurement by making more contracts suitable for small firms would save taxpayers’ money while driving up standards. It’s a no-brainer,” McTague argued.
Previous research by the FSB found 440,000 small firms were at risk of closure due to late payments.