If there's one aspect of running a business that's sure
to frustrate, enrage and even keep business owners up at night,
it's late payments. We're preaching to the converted here,
because almost every small business owner out there will have, at
one time or another, been on the receiving end of a late payment,
and frankly, there's nothing worse.
When you work hard to deliver a customer's order on time and
provide a high level of service, you expect the same level of
professionalism in return. However, more and more business are
being pushed to the brink of insolvency by customers who delay
making payments for reasons known only to them.
The extent of the problem
Late payments are the scourge of the UK's small business
economy. Those might sound like strong words, but not when you
consider just how far reaching the impact of late payments can be.
Research from YouGov and ACI Worldwide has found that 48 percent of SMEs are frustrated with delayed
payments. But what negative impact do late payments have on
wider business success?
33 percent of respondents said late
payments affect their ability to meet financial obligations on
17 percent said late payments have a
negative impact on staff up-keep, including salaries, expense
reimbursement and recruitment;
10 percent said late payments hinder
their ability to access finance for equipment, product development
The impact of late Invoice payments
New research by the insolvency and restructuring trade body R3, has found that late payments were
responsible for more than one fifth (23 percent) of all corporate
insolvencies in the UK in the last 12 months.
The government has made efforts to improve the current culture
of late payments in the UK. The Prompt Payment Code, which sets
standards for payment practices and best practice, was amended in
April 2016 to include new measures to tackle late and unfair
payment. This includes measures to promote and encourage large
firms to commit to 30-day payment terms as standard, with a 60-day
However, the latest research shows the problem hasn't
improved since 2014, when a previous survey found late payments
were a primary or major factor in 20 percent of corporate
insolvencies. Clearly it's back to the drawing board if the
government wants to improve this situation.
Andrew Tate, president of R3, said:
"The serious implications of late payment are recognised by
the high profile the issue now commands. Unfortunately, government
promises and other initiatives don't appear to have yet made
any real impact on the scale of the problem".
Taking steps to protect yourself
Even if a business has a great product and fantastic staff,
things can still go wrong very quickly if it has one or two major
customers who are consistent late payers. On the surface of it,
this can seem like a factor that's outside of a business's
control, but there are plenty of steps you can take to protect
Andrew Tate continues: "Businesses must not become
complacent when it comes to checking who they are trading with. If
a business is not paid upfront, it is essentially acting as a
lender – albeit without the protections a secured lender
enjoys. Keeping track of invoices and getting paid is vital.
As a company rescue specialist, we've certainly seen our
fair share of businesses succumb to the pressures of late payments.
However, this is a situation that can be reversed.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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