The UK Government has reassured business owners that we have avoided a recession. However, we can all sense that we are living through economically challenging times.
Small businesses are being stretched to their limits with rising energy bills, rising inflation, and an increasing cost of living. If you add late payments and outstanding invoices to the mix, it is no wonder that according to Federation of Small Businesses (FSB) some 50,000 businesses close each year.
Thousands of small businesses are being held back not by a lack of ambition but by a systemic poor payment culture. There remains a lack of adequate protection for the self-employed and small businesses. (1)
A recent FSB paper entitled ‘Time is money: The case for late payment reform’, explores just how far reaching the situation is.
Findings include on average through 2022, quarter-on-quarter:
- 52% of businesses experienced late payment.
- 25% businesses reported increased late payment.
- The most affected sectors include education, construction, administrative, professional, scientific, transportation, IT, arts and human health and social work.
- Small businesses in south-east and east of England, and Northern Ireland were more likely to experience late payments. (1)
Larger corporate businesses repeatedly take advantage of smaller businesses. However, with smaller businesses generally having much lower cash reserves than their larger counterparts, when payments are not made promptly the impact on a small business can be damaging.
When cash flow is already tight, being kept waiting for late payments can hinder a small company’s growth and ambition. Furthermore, the time and effort it take small businesses to chase up unpaid and overdue invoices can hinder productivity.
FSB Policy Chair Tina McKenzie said: “Enough is enough. Late payments in the UK have continued to spiral out of control“ (2)
“Big businesses shouldn’t be using small firms as a bank. It’s time for them to step up and take responsibility for poor payment practices.”(2)
However, it is not only the impact of big businesses not paying small businesses on time. The impact of late payments or debtors on microbusiness or sole traders can be catastrophic.
We have recently spoken with three small business owners: two sole traders and one in a business partnership.
One of the sole traders told us about a recent “bad payer” who keeps promising payments which never materialise. This sole trader now has his customer on stop until payment is forthcoming.
Another sole trader has on more than one occasion been out of pocket having been asked to order larger gardening machinery and then had customers let him down once the purchase had been made. On these occasions this is even with deposits having been paid!
The partnership we spoke with have unfortunately been victims of non-payment on more than one occasion. Having been instructed to undertake works, their customers have got to the end of the process and advised they don’t have the money to pay. On one occasion one customer owing a considerable sum of money, simply stopped communicating with them.
Although we all appreciate that our current economic situation poses challenges, there is a more serious side to customers or clients not paying late or not all when their provider is a small, microbusiness or sole trader.
At the end of the day these people are all self-employed. They do not have the luxury of endless pockets or vast savings. They also do not have someone paying them a wage. If a self-employed person is not paid, no one else picks up the tab!
Late payments or non-payment can put SMEs, sole traders, etc under enormous amounts of stress which is extremely tiring. When you consider that a lot of SMEs, microbusinesses, sole traders, etc have business premises as well as homes to pay for; late or non-payments can be a daunting situation to be in.
There are many layers of trust in business. Many people say that you have to trust a supplier or service provider to gain customer satisfaction. However, business owners also need to trust that their customers or clients will pay for services rendered in a timely manner.
SMEs, microbusinesses, sole traders, partnerships, etc work tirelessly for their customer and client base. Therefore, they should be respected enough by the people who employee their services to pay for their services on time, every time.
Written by Katy-Jane Mason for and on behalf of Virtually Smart Ltd.
- https://www.fsb.org.uk/resource-report/time-is-money.html
- https://www.fsb.org.uk/resources-page/time-is-money-late-payments-stifle-small-businesses-report-shows.html
