SMEs owed £22,000 on average in late payments

By James Bayley

Published: 13 December, 2023

Following a review of business payments and cash flow, the government has found that small and medium-sized enterprises (SMEs) were owed on average £22,000 in late payments in 2022.

As a result of these findings, the government has called for greater transparency to help tackle the late payment culture.

The report also revealed that the average time taken to pay SMEs has reduced from 81 days in 2010 to 36 days in 2021. Despite this positive trend, more improvement is still needed – late payment and long payment terms remain persistent in key areas of the economy, with 40% of invoices still not being paid according to agreed terms in 2022.

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Managing cash flow is one of the biggest issues that small businesses and new businesses face.

According to research conducted by the Federation of Small Businesses (FSB), 50,000 SMEs are estimated to go out of business each year referencing cash flow as a cause. Across the UK, Intuit Quickbooks found that 56.4m hours are wasted each year by businesses chasing late payments, and Xero, an online accounting business, estimates that late payments cost small businesses £684m each year.

However, some in the wine trade, have managed to keep late payments to a minimum courtesy of Direct Debit.

“There are horror stories out there that we’re all aware of hitting the biggest companies, but as a smaller supplier, our exposure tends to be lower,” Nik Darlington, MD of specialist importer Graft Wine told Harpers.

“We have always deployed Direct Debit to manage customer payments, through GoCardless, which while coming at a not insubstantial cost does bring peace of mind and ease for everyone.

“It’s been very positive to see over recent years that Direct Debit, once shunned by many, is becoming widely accepted as a form of managing payments and our experience is the overwhelming majority of customers these days prefer it. Our hope is that the trend continues in the right direction, with the overriding message always being one not of suspicion, but of it making people’s lives easier.”

The government has said it will take forward legislation to extend payment performance reporting obligations and will include new metrics for reporting, including a value metric, so businesses and commentators can see the value of invoices, including invoices paid late, and a disputed invoices metric.

Through the minister for small business, the government is also seeking to improve publicity, including highlighting the work of those undertaking external analysis, such as Good Business Pays and its award scheme.

However, not all wine and spirits businesses are confident in the government’s ability to support SMEs.

“Like all wine merchants we offer credit to trade customers,” Tom Ashworth, CEO of Yapp Brothers, told Harpers.

“It represents over half our business, so the management of that cashflow/risk is important and we have good systems and people in place to keep on top of it. Generally, late payments aren’t a problem.

“However, I’m not optimistic that this government can improve matters or make late payments more transparent. I think they would be better served incentivising the major banks in the UK (some of which they still own) to lend to SMEs, which they aren’t currently doing. If they did that, businesses would be less inclined or obliged to treat suppliers as quasi-lenders.”

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