Small firms hit hardest by ‘poor payment culture’
19th May 2015

The new Government has been called on to tackle the UK’s ‘poor payment culture’ as new figures show that late payment is now the prime cause of one in five of all UK insolvencies.

John Allan, National Chairman of the Federation of Small Businesses (FSB), put most of the blame on large companies’ treatment of small suppliers. He said “The weight of evidence showing the damage poor payment practices are having on the UK economy grows greater each day with the amount owed in late payments now at £41.5 billion. Once again we find it is sole traders and smaller firms which are facing the brunt of late payments, and this is putting viable businesses at risk of closure. Addressing the UK’s poor payment culture must be a top priority for the new government. Small businesses see progress on payment practices as a key benchmark of success for the new administration.”

The figures, from to the insolvency trade body, R3, also revealed that business victims of late payment saw almost one in six of their invoices paid late in the last six months and almost half of all businesses suffered from some degree of late payment.

Andrew Tate, R3 vice-president, said: “Late payment puts unnecessary strain on a businesses’ cash flow, increasing the risk of insolvency. Despite government guidelines and business campaigns, late payment still remains all too common. Businesses know how much it costs others to chase down debts, and feel they can still get away with it.”
      
He added: “When a business enters insolvency, customers can see this as an opportunity to further delay payments or avoid payment altogether. Doubts over cash flow caused by late payment can make it impossible to continue to trade a business in administration until a buyer is found.”

Sole trader late payment victims are most likely to have most invoices paid late, seeing an average of 17.3% invoices being paid late in the last six months. Late payment victims employing over 250 people only had an average 12.3% of invoices paid late.

7% of sole traders said that between 41-50% of their invoices had been paid late, compared to just 1% of companies employing over 250 people.

Andrew Tate concluded: “It’s the smallest companies that bear the brunt of late payment. The consequences of late payments are magnified for smaller companies too: one invoice being paid late will have a disproportionate impact on a very small company compared to a larger counterpart.

www.r3.org.uk