A new report from The Federation of Small Businesses (FSB) says that the UK’s poor payment culture forces 50,000 small businesses under and costs the UK economy around £2.5 billion each year.
The report, entitled ‘Time to Act: The economic impact of poor payment practice’ examines how small firms and the wider economy are affected by poor payment practice.
The FSB’s report found that existing UK policy interventions had had no discernible effect on UK’s poor payment culture over the past five years, with small businesses reporting that, on average, 30% of payments are typically received late — compared to just 28% in 2011.
The report also showed that 37% of UK SMBs have run into cash flow difficulties, with 30% saying they have been forced to use an overdraft at some point and a further 20% saying profits have been hit.
More troublingly, the report says that in 2014 — if payments had been made on time and as promised — 50,000 businesses could have been saved, growing the UK economy by £2.5 billion.
“There is a real danger that we are creating a business culture in the UK where it is acceptable not to pay SMEs on time,” says Chris Burgess, Chairman of FSB Merseyside, West Cheshire and Wigan. “All too often large companies ride roughshod over their small suppliers by not paying them on time or in full, which has a chilling effect right across the economy.”
“It’s distressing to hear…that, in 2016, the average value of each late payment now stands at £6,142….Small businesses have to run a tight ship as far as their cash flow is concerned as they struggle with increasing business costs and an uncertain domestic economy.”
“They should not also have to struggle with the stress, time and money required to chase overdue payments from big businesses.”
For SBMs affected by late payment of invoices, Debtor Daddy recommends the following actions:
- Invoice as soon as possible and ensure payment terms are expressed and understood
- Offer incentives for early payment
- Start chasing invoices as soon as they become overdue
- If payment is not forthcoming, remind the customer that payment terms will be enforced with penalties
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