Not getting paid on time is a big issue for businesses. Late payment higher up the chain often leads to more late payment elsewhere and can create financial distress as cash flow becomes strained in tighter economic conditions.

Wilful and non-wilful late payment is a major problem for SMEs.

It’s also become an increasing threat for businesses navigating a challenging economy with fewer reserves than usual, partly due to the impact of COVID.

Cash flow is king and late payment can be the factor that forces a company out of business, particularly where large or multiple sums are owed.

In September, the Department for Trade and Business published its Late payments research, which aims to understand variations in payment performance and practices across business sectors and sizes.

Its findings won’t surprise anyone too much but do highlight the scale of the problem and how late payment can have a trickle down effect. Interestingly there were no definitive and observable variations by size or sector (although this could relate to sample size).

• Businesses who pay late attributed this to administrative errors (36%); disputed invoices (31%); and to technical issues (23%), such as invoices getting lost

• Some businesses deliberately pay late, with a number of those surveyed (18%) saying that customers were using this as a form of free finance

• Microbusinesses were more susceptible to cash flow issues. Around a third (32%) of those surveyed said they paid their suppliers late owing to their business customers paying late, compared to 20% overall

• 30 day terms were most common. Small businesses were more likely to say it took business customers longer to make payment than the typical agreed terms (49% compared to 36% generally)

• Large and goods sector businesses were more likely to pursue late payments formally. The protection of customer relationships was given as the main reason why businesses chose not to do so

• The industry standard was a factor when those surveyed were deciding on standard payment terms. Around a fifth (22%) said cash flow management was a consideration. Some businesses were prepared to adapt their payment terms to gain competitive advantage 

• When dealing with larger business customers, some felt that the power around the setting of contractual payment times was very much out of their hands

• The most common payment method businesses accepted from their business customers was bank transfer

• Most businesses (69% of all surveyed) were unaware of the regulations brought in by the government requiring large businesses to report publicly on their payment policies, practices and performance

• While some did not think the government should intervene to improve payment practices, others believed the introduction of maximum payment terms would be beneficial

While there is nothing groundbreaking in the report, it is still worth a read. The main omission is how businesses can get paid faster, which is the question everyone wants answered.

If you’d like help with financial and strategy planning, or risk analysis and management, please just give us a call.