Simon Gray, ICAEW’s Head of Business, says the multitude of pressures impacting smaller businesses, including inflation and energy price increases, means that they are less equipped than large organisations to weather the storm.
“While Liz Truss’s government is faced with many challenges, it can’t ignore the issue of late payments – particularly with the cost-of-living crisis looming large, which is set to have a huge impact on our small businesses.” Stricter penalties for those ignoring agreed payment terms, in addition to more transparency in regulation and reporting, are now vital to support small businesses across the country. “The current mechanisms clearly aren’t strong enough to deter larger organisations from mistreating suppliers, many of which aren’t able to risk losing their custom.
But our study found that 55% of large organisations admit they have paid their small business suppliers later than the agreed payment terms in the last 12 months, despite more than three in four saying they are aware of the impact this could have on the supplier’s business. Hayward says: “Different governments have promised to clamp down on late payments for years. It allows creditors to charge interest at 8% over the base rate for late payment, compensation and reasonable costs of collecting the debt. The Late Payment of Commercial Debts (Interest) Act was enacted nearly a quarter of a century ago, coming into force on 1 November 1998. Xero’s study found that 81% of large organisations would be more likely to pay their suppliers in a timely fashion if this terminology was more widely adopted. “Renaming late payments as ‘unapproved debt’ would be a strong starting point to move away from language that legitimises a poor practice that does untold damage to small businesses,” Hayward says. Hayward also warns that the term ‘late payments’ does not capture the severity and urgency required to inspire action from the worst offenders, typically large businesses using smaller suppliers. “It’s become so deep-rooted in the behaviour of big businesses that it’s extremely difficult to address,” she says. Just as worryingly, Xero Director of Operations (UK and EMEA) Kate Hayward warns that there is no easy solution to solving the late payments crisis.
Unpaid invoices small business software#
Using analysis from thousands of businesses based on revenue and expenses data, analysis by business software platform Xero reveals around half of invoices issued by small businesses were paid late, with 12% paid more than a month after they were due. Late payments cost small business owners £684m a year, with most receiving payment 5.8 days late on average, new research shows. Small businesses have long suffered from suppliers paying them late, but mounting economic challenges including rising inflation and the falling value of the pound are only serving to aggravate the problem.
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