SMEs in the UK are collectively owned £44.6 million in late invoice payments, according to a recent study by Business Expert.
Despite SMEs making up 99% of all businesses in the UK, 62% of small business invoices are now paid once already overdue. This puts the nation’s 5.7 million SMEs at risk.
Despite the recommended payment period being 30 days, yet average payment takes an additional 30 days.
It is thought that if small businesses were paid on time, the economy could be boosted by as much as £2.5 billion.
Small businesses are more greatly affected by late payments as they may not have the ability to pull together large sums in the event of late payment.
For example, if a small business turns over £1.2 million a year and sales are £100,000 a month, with the recommended payment terms of 30 days and everyone pays within that deadline then the company needs to invest £100,000 in working capital.
However, late payments of just 15 days means the business needs an additional investment of £50,000.
The Federation of Small Businesses estimates that 50,000 businesses close each year because of late invoice payment.
With 16.1 million people currently employed by SME’s, making up 60% of private sector employment in the UK this is a very real concern.
Annual SME turnover in 2017 was £1.9 trillion, making up 51% of private sector turnover in the UK.
In the Small Business Finance Report, the British Business Bank found that despite 68% of small business owners main aim being to pay down debt, 40% are still using external debt.
With SMEs employing 16.1 million people in the UK, which is 60% of private sector employment, it is a concern that SME’s are often relying on debt.
Of those who are using debt, 68% use the money to acquire working capital or improve cash flow, rather than investing in the business.
The Federation of Small Businesses has found that nine out of ten public sector suppliers have been paid late.
Local governments and public infrastructure projects pay just 9% of SME suppliers within the agree payment deadline.