Late payments to SMEs reach £34bn

Late payments to SMEs rose from 12 days in 2018 to 23 this year. Larger businesses take longer to pay than smaller counterparts, with companies waiting on £34bn.

This is according to research from MarketInsight, which has examined late payment trends between 2013 and 2019, analysing over 100,000 invoices.

The analysis suggests that businesses typically agree 45-day payment terms from completion of work or delivery of goods. Despite this, almost two-fifths (39%) of invoices issued in 2019 (worth over £34b²) were paid late, an improvement on 2018 when 43% of invoices were paid late. However, the number of days an invoice was paid late in 2019 has doubled to 23 days from 12 days in 2018. Invoices paid late were typically larger in value (£34,286) than those paid on time (£24,624).

Bilal Mahmood, external relations director at MarketFinance, said: “It’s great to see that fewer invoices were paid late in 2019 but worryingly, those that were paid late took twice as long as in 2018, up from 12 days to 23 days. Late payment practices harm business cash flow, hampers investment and, in extreme cases, can risk business solvency. Separate research we’ve conducted highlighted that 87% of businesses are prevented from taking on more orders because of the cashflow constraint owing to late payments. Overall it seems who you are doing business with and where they are based is important to know for a small business if they need to forecast cashflow.

“Government measures such as the Prompt Payment Code and Duty To Report have helped create awareness but need more bite. Until this happens, there are ways for SMEs to fight back against the negative impact of late payments, from having frank discussions with debtors that continuously fail to adhere to agreed payment terms, to imposing sanctions on those debtors, or seeking out invoice finance facilities to bridge the gap.”

Professional and legal services businesses suffered the most with late payment in 2019. Seven in ten (70%) of invoices were paid late, up from 30% in 2018. Manufacturers (57%), retailers (49%) and creative industries businesses were also heavily impacted by late payment of invoices. Interestingly, late payment practices improved for companies working in the utilities and energy sector with only a third (34% of invoices being paid late in 2019 compared to two-thirds (66%) in 2018.

The number of invoices paid late to companies by region was fairly evenly split. Notably, businesses based in the South East (56%) and Northern Ireland (55%) had the highest number of invoices paid late in 2019 and late payment practices worsened from the previous year.

The biggest improvements 2018 vs 2019 in late payment practices were in North West (63% vs 37%), North East (60% vs 40%), Scotland (62% vs 38%) and the South West (61% vs 39%). Additionally, businesses in the North East (25 days vs 11 days) and South West (33 days vs 10 days) had more than halved the number of days an invoice was paid late.

Mahmood added: “SMEs owners have come to expect long payment terms but late payments are inexcusable. For every day an invoice is late, it’s more time spent chasing payment. This means less time for business owners to focus on growing their business, coming up with innovative ideas and hiring more people, or just paying their staff and bills. Things need to change quickly.

“We want the UK to be the best place in the world to start and grow a business, but the UK’s small-to-medium-sized businesses are hampered by overdue payments. Such unfair payment practices impact a business’ ability to invest in growth and have no place in an economy that works for everyone.”