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18/08/2015

How big of an issue is late payment?

Late payment continues to be a persistent problem in the business community, particularly for smaller companies who tend to be disproportionately affected. Exactly how big of a problem is it?

Estimates vary. According to research by Bacs Payment Limited the amount owed in late payments now stands at £41.5 billion.
 
On the other hand, a recent poll of 1,000 business owners found that the average small-to-medium sized enterprises are owed £40,857 in unpaid invoices and £20,937 of that total is overdue. Extrapolated across the small business community of the UK of 5.2m firms would mean an unpaid bill of £212 billion.
 
Our latest Business Distress Index report found that half (49%) of UK businesses had invoices paid late by customers in the last six months.
 
Smaller companies bear the brunt of the problem, with 7% of sole traders saying they have 41-50% of invoices paid late, compared to just 1% of companies employing over 250 people.
 
Not only does late payment have a detrimental impact on the business paid late but there can be a knock-on effect. The research by Bacs also revealed that as a result of a delay in receiving payment from customers, 23 per cent of UK businesses are forced to pay their own suppliers late.
 
The practice can needlessly jeopardise businesses throughout the whole supply chain, and for some, it can spell serious financial difficulties. In fact, R3 members believe that late payment by customers for goods and services is a primary or major factor in one-in-five corporate insolvencies.
 
Earlier this year the FSB called for an independent inquiry into the UK’s poor payment culture ‘to get clear actions and the progress needed to tackle late payment and supply chain bullying’.
 
In his first speech as Business Secretary, Sajid Javid, recognised the extent of the problem, acknowledging the role it can play in forcing a company into insolvency, and outlined his ambitions for tackling the issue in his Enterprise Bill. Among proposals is the establishment of a Small Business Commissioner, a consultation on which has been recently launched, to help resolve business-to-business disputes, particularly over late payment. From next year, there will also be a ban on anti-invoice finance terms in contracts which will help small businesses secure finance against money owed to them in invoices.
 
The government has announced some measures on late payment before; time will tell if these new proposals can help solve one of the thorniest issues in businesses’ sides.

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see www.r3.org.uk for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
     
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.