B2B Payments

In UK, Late Payments Spur SMB Financing Scramble

A new study shows that, in the U.K., SMBs tap emergency financing to deal with late payments. In Africa, bread shortages have loomed with suppliers demanding cash up front. Late payments are also hitting the Middle East, according to reports.

Late payments can have a cascading effect up and down supply chains, amounting to a cash drain. Research from GoCardless found that as much as 56 percent of business owners in the U.K. have had to tap into personal funds or emergency financing options to keep business operation running amid late payments.

The impact extends across businesses, said the study, but has hit small to medium-sized businesses (SMBs), as 80 percent of smaller firm owners said they were not sure if they could pay bills on time, and that invoices due to them that were left unpaid had also hit cash flow.

The effect is widespread enough that 41 percent of firms said late payments engender more concern than Brexit. This comes against a backdrop where 91 percent of SMB owners said that having certainty on payments is essential to business operation. About 80 percent said a lack of certainty means they cannot grow the business in the way they want.

As noted elsewhere, The Federation of Small Businesses (FSB) has estimated that on-time payments would contribute another £2.5 billion ($3.214 billion USD) to the U.K. economy.

As it stands now, about 67 percent of business owners have to cut back on salary or hiring as they struggle with late payments. The GoCardless data also shows that there is a psychological impact, where 89 percent of business owners have said the uncertainty over payments means they are more stressed and anxious.

In one overture on late payments, Zambia Business Times reported that Vedanta’s Zambian unit Konkola Copper Mines (KCM) struck a deal with its supply chain constituents in a meeting earlier this month. Debt owed to those suppliers will be paid out in phases over the next few months through December. Sources also noted that the company has been criticized on late payments.

“There seems to be a systemic supplier and contractors management problem at KCM, as other large copper mines on the Copperbelt — like First Quantum Minerals, Glencore’s Mopani Copper Mine, etc. — have performed [much] better as far as timely payments are concerned,” reported the publication. KCM logs roughly $1 billion in annual top lines.

Elsewhere in Africa, the Grain Millers Association of Zimbabwe (GMAZ) imported wheat to meet a possible flour and bread shortage in the midst of late payments to the supplier by the Reserve Bank of Zimbabwe (RBZ), reported AllAfrica. Sources told AllAfrica that non-payments have led to suppliers wanting cash up front and legacy debt of $80 million backdating to 2015.

In the Middle East, according to one professional engineering services firm, WSP, it’s not all that easy to get paid on time. In an interview with ConstructionWeekOnline.com, WSP Managing Director Greg Kane said he felt “disappointment” that the payments culture there had not improved in the region.

“I don’t think it has necessarily [gotten] worse for us at WSP, but perhaps a point of disappointment is that [it] hasn’t [gotten] better. If we look at our day sales outstanding [rate] (the number of [days] it takes for us to get paid), the Middle East is the highest in the world for us,” he told the site.

The impact means firms must be selective about the clients they take on. The sentiment was echoed in the same publication in August by Rajesh Kumar Krishna, chairman and CEO of Beaver Gulf Group. In his own interview with ConstructionWeekOnline.com, he said pricing margins, in tandem with increased costs, have led Beaver Gulf Group to take an “even more discerning view of the projects it bids on.” Selecting clients that agree to — and, as he said, follow through on — equitable payment terms “is the most critical factor in ensuring corporate efficiency and growth,” said Krishna.

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