SMEs in UK are having sleepless nights over late payments resulting from cost-of-living crisis

A recent study by Barclays indicates that 26% of small and medium enterprises (SMEs) in the United Kingdom are facing late payments.

This is because their customers’ operating margins are getting squeezed due to higher costs. This is in turn caused by the rapidly rising prices of heating, eating, and fuel.

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According to the new findings, rising prices have begun to affect payments between businesses, with 16% of SMEs reporting that they are finding it more difficult to pay suppliers due to the cost-of-living crisis, with that number rising to 33% in the manufacturing and construction & real estate sectors.

For certain SMEs, the money owed in late payments is creating a delay in new hiring or investment back into the company, as 10% said they could use the money owed in late payments to hire more people and 12% said they could expand their product or service offerings to grow their business.

Over a quarter (26%) of business owners said they have been concerned or their welfare has suffered as a consequence of late payments, and a fifth (21%) of business owners said they had had sleepless nights as a result of late payments.

However, more than half (58%) say they would refuse a job with a potential customer if they had a history of late payments.

Over a third of firms (39%) stated they have used lawyers or taken legal action to recoup late payments, indicating that getting consumers to pay on time can be tough. Smaller businesses, with a turnover of less than £2 million, on the other hand, are less likely to pursue legal action. Only 31% of those took legal action compared to 51% of those with a turnover of more than £2 million.

In the UK, if a payment deadline is missed, businesses can claim late payment interest and compensation. However, while 60% say they are aware that they can take action, only 16% have done so, and 26% are unaware that this is a possibility.

Small Business Commissioner, Liz Barclay, said: “It is utterly distressing to see that late payments for some are becoming more frequent. However, given the cost of living crisis, increases in material costs and staff wages, it isn’t surprising as many firms are delaying payments until they themselves are paid.

“The biggest companies with the deepest pockets must realize that if they delay payments or offer unfair extended payment terms the whole of their supply chain suffers. The talented people who keep them supplied with goods and services from which they make their money will go to the wall and struggle with mental health issues."

Late payments have a detrimental influence on a company's income, resulting in cash flow volatility, and can also lead to business failure.

In this environment where operating cost is rising rapidly, your customers will look for ways to delay payment in order to manage their own operations. Hence, it is more vital than ever for SMEs to maintain a high level of cash flow discipline.

Receivables, according to RIABU, are the first and sole source of cash inflow into your company. As a result, procedures must be put in place to ensure that these receivables are received on time. To resolve inconsistencies, these processes must include constant communication with clients, which is especially critical throughout the contract initiation period. As a result, your Days Sales Outstanding (DSO) will improve, and your cash flow will improve.

Get more tips on effective cash flow management from our book, Let The Cash Flow. To find out more about how RIABU helps small businesses get paid on time, visit RIABU.com