Late Payment Ripple Effect hits half UK Business
- £2 billion potential annual cost to economy
- 2.38 million UK business owners stall payment to other parties to bridge late payment gap
- For 1.35 million businesses, one late payment affects all other suppliers
Late payments to businesses are causing a ‘ripple effect’ impacting on more than half UK businesses which could be costing them as much as £2 billion a year.
New research, conducted among 876 business leaders for independent invoice financier Bibby Financial Services, shows that 2.38 million (53%) UK business owners or managers are stalling payments to other parties in a bid to bridge the late payment gap. With 12% of these businesses spending three days or more per month to recover payments, the potential cost to the economy is huge.
The figures highlight this ripple effect and the number of businesses that can be hit by the late payment chain. Indeed, for 1.35 million (30%) UK businesses, just one late customer payment can have a large impact on payments to all subsequent suppliers. And, worryingly, for half a million (12%) businesses one late payment can affect everyone they do business with.
Indeed, the research reveals 52% of UK business owners are spending more time this year chasing late payments than last year, costing vital time and money at a crucial stage for the UK economy. This is supported by figures from Bacs released earlier this year which showed SMEs were owed £25.9 billion after late payments increased by 40% on the previous year’s amount of £18.6 billion.
Late payment is shown to have far reaching consequences. For more than two in five businesses (43%) the single main outcome of late payment this year is an inability to pay suppliers. For a third (34%) it means a recruitment freeze and for 30% it means a staff salary freeze.
Edward Rimmer, Bibby Financial Services’ chief executive, UK and Ireland, commented:
”While we’re all aware just how hard businesses are fighting for survival the research reveals just how shocking the impact of late payment can be. With credit still restricted and at a time when businesses are being squeezed at every turn, we urge businesses to support each other and do everything possible not to succumb to the easy route of late payment as it can become a vicious circle which halts the purchasing cycle and, ultimately, can disrupt the supply chain, not to mention the impact on the goodwill and trust of other customers and suppliers.”
The research also reveals the other and sometimes costly lengths to which businesses are going to bridge the growing problem of late payment:
- One in five (18%) rely on a bank overdraft, whether it be business or personal
- One in 10 (nine%) resort to asking family members for a loan
- Nearly one in 10 (eight%) go to their friends
- Almost five% will use personal savings
- Three% will rely on a personal credit card
And when looking at how companies are currently managing late payment, 12% of business owners and their staff spend three days or more each month chasing up late payments. A third (30%) spend just half a day per month, a third (30%) have a credit control department, and one in 10 (9%) use a factoring company to manage this process.
Edward Rimmer added:
“There are some easy solutions to dealing with late payment and free up cash flow. The first is to ensure you are in control of your finances, then look at all the cash flow options available to you. With 36,2000 businesses expected to fail this year alone, ensure your business does not become a victim of circumstance. If you cannot afford to install an internal or external credit control department then you could consider invoice finance, or factoring, which takes away the hard work of chasing late payment and allows you to focus on other aspects of managing your business.”