British businesses are facing longer payment delays than ever. Research by MarketInvoice that analysed over 80,000 invoices from 2017 found that 62 per cent of invoices that were issued by SMEs were paid late. That’s a slight increase over 2016’s 60 per cent, and a growing proportion of these were paid more than 2 weeks after their due date, with some payments being delayed by as much as 6 months.
While the UK economy as a whole is still growing, some sectors are beginning to feel the pinch from the country’s ongoing economic uncertainty. As businesses begin to experience cash flow issues, they may delay outgoing payments, and effectively pass the problem on to their suppliers. In the absence of better cash flow management tools, this is dangerous for both the suppliers, and the offending business that relies on them.
Payment issues are widespread in the UK
Many sectors of the economy suffer from late payments, with some more consistently paying late, and some paying later than others. The food and beverage industry, energy businesses, and wholesalers are the most frequent offenders, with 83, 80, and 79 per cent respectively of all invoices paid late. While these industries pay late most often, transport businesses, utilities, and media businesses delayed payment the longest, paying between 21 and 25 days late.
This is not to say that the UK’s late payment epidemic is only focused on specific industries. In some geographical regions, nearly all businesses have been affected. At the top of that unfortunate list is Northern Ireland, where 93 per cent of all invoices were paid late in 2017. On the other side of the country, East Anglia and the East Midlands came in second and third, with 68 and 66 per cent paid late.
UK small businesses are also generally paid later by British partners than their foreign competitors. Foreign suppliers are normally paid within just 9 days, while domestic suppliers are forced to wait an average of 18 days. This is surprising, considering that American and continental European countries are even more likely than British businesses to pay their suppliers late, and offering no obvious reason why a domestic payment should take twice as long to issue as an international one.
Surviving late payments
However the UK’s payment culture continues to develop, UK small businesses need to be prepared to better manage late payment issues going forward. Proficiently managing cash flow interruptions related to late payments is a critical part of keeping working capital stable, enabling your business’ growth, and keeping your own supply chain strong and reliable. Fortunately, there are a variety of financial tools available to businesses of all sizes that can greatly mitigate the impact that late payments can have on your operations.
Invoice financing is an extremely versatile tool for SMEs. Instead of waiting for a late-paying client to pay up, or inefficiently holding emergency funds that could otherwise be invested in your business, business owners can simply finance invoices to get access to funds immediately. Your financial institution will pay most of the invoice’s value up front, and deliver the rest after it has collected the payment from your client. This way, business owners know exactly when they’ll have access to the funds they need, and can finance additional invoices as needed to cover any other unexpected costs.
Supply chain finance
One of the biggest problems that businesses with cash flow issues face is the inability to pay their own suppliers. This can disrupt their own operations and the operations of their suppliers, which can ultimately destabilise the entire organisation. Supply Chain Finance offers an elegant solution to this. Using a credit fund supplied by your financial institution’s investors, businesses can pay their suppliers whenever payments are due, if needed, even early. The resulting balance can then be paid off at a later date, when incoming revenue has been collected.
SMEs need long term solutions
Cash flow management tools like these are a vital resource for any small business, but the UK’s payment trends are part of a larger issue that needs to be addressed. Late payments can never really be eliminated, but they should be the exception rather than the rule. Ultimately, small businesses need to be at least somewhat protected from unreasonably late payment.
In Australia, the government’s payment times inquiry from 2017 has already spurred the private sector and government into action, leading to significant improvements. In the meantime, using all the cash flow management tools available could be critical to making it through an increasingly difficult time for the UK.