B2B Payments

Late Payments Mean Summer Doldrums For SMB Owners

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As the temperature goes up, late payments scorches SME owners. Hitachi Capital Business Finance shows that a late payments “epidemic” is underway for those chasing invoices stretching back to June. Plus, in the UK, some business owners have to delay or cancel vacation plans as they grapple with cash flow issues.

Summer — lazy and hazy days, at least for some. But not for business owners forced to chase late payments.

To that end, Hitachi Capital reported that, as noted in a survey of 1,200 businesses conducted by YouGov, late payments bedevil several verticals. In fact, the problem is so widespread that it is being described as a “late payment epidemic.” Of the businesses surveyed, 63 percent stated that they had to deal with late payments for invoices stretching back to June 2018. A minority — in this case 30 percent — could confirm that their invoices had been paid on time.

Risk skewed toward smaller companies, as those with turnover/sales of less than £1 million ($1,274,285 USD) claimed that invoices were being paid more than a month late, to the tune of 26 percent of firms. Another 25 percent said they had risks of bad debt tied to payments that were late. All in all, 20 percent of firms said they had seen non-payment for 20 percent of invoices.

Drilling down a bit by vertical, 81 percent of manufacturing firm respondents said they faced late payments. As many as 37 percent said this was, in their eyes, a “serious” development. Regionally speaking, smaller firms based in London saw a slew of late payments, affecting 70 percent of companies, at least as measured with June’s invoices.

As noted by Gavin Wraith-Carter, managing director of Hitachi Capital Business Finance, “We estimate there is around £50B of cash locked up in late payments, and this disproportionately affects the small business community, not to mention the valuable time and resources small business[ses] divert from the production line to needlessly chasing late payments.”

New Zealand Eyes Late Payments, Too

Separately, New Zealand has grappled with its own late payment issues. The New Zealand Herald reported that data, as estimated by Xero, shows that firms have seen seven-day payment terms stretched (quite a bit, it seems), as they are being paid 10.3 days late on average. The data also shows 14-day payment terms get stretched to eight days late. For 20 days, the late payments are almost 10 days late.

Similar to the U.K., the problem is focused on small to mid-sized businesses (SMBs). Managing Director Craig Hudson stated that “eight days late for one invoice has the power to cripple a small business.” He added that New Zealand has seen less-stretched terms than Australia and the U.K., where government action has been necessary.

“I’d like to think that we aren’t at that stage yet, but if we don’t do anything to reduce this 8.3 number, then the small business sector — comprising 97 percent of our workforce and the driving force behind our economy — will continue to suffer,” he said.

Want further proof of the impact of late payments? Consider the fact that, in the United Kingdom, GoCardless has estimated that as many as one in five SMB owners spend three days trying to get late payments … well, paid — in the summer months alone. As many as one in 10 business owners take up to nine days to do so.

Against that backdrop, about 57 percent have to cancel holiday or vacation plans as a result. Even while on vacation, the impact of late payments remains palpable, as 61 percent of business owners have stated that they stress about late payments while on vacation.

Josh Sasto, head of partnerships at GoCardless, said, “[SMB]s are the lifeblood of the U.K. economy, and it’s not right for them to be denying themselves valuable time to recharge their batteries just to chase late payments. On time payment is a right, not a privilege.”

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