Late payments are putting the brakes on growth and adding to cash flow woes, with three-quarters (75 per cent) of SMEs in the retail sector not being paid on time for the provision of goods and services, according to new research from Growth Lending.
The lender’s Don’t Bank On It report revealed that 18 per cent of retail SMEs experience late payments – which refer to payments made outside of agreed terms – on a monthly basis, with a quarter (25 per cent) facing late payments on a weekly basis. This equates to nearly half (43 per cent) of retail SMEs regularly being paid late, placing strain on cash flow and adding to the already challenging circumstances UK businesses are currently experiencing.
Of those SMEs in the sector that experience late payments from customers, over a third (38 per cent) have between £10,000 – £50,000 tied up in late payments and almost half (48 per cent) have up to £100,000 of capital unavailable as a result of unpaid invoices. This means that businesses are unable to access this cash – cash that could help them tackle rising energy costs, combat soaring inflation, or contribute towards the business’ growth.
Unpaid invoices are likely to add to the cash flow challenges that SMEs experience during the Christmas period and into the new year. With additional costs to consider, such as more staff holidays, early payroll, bonuses, increased stock and fewer trading days, late payments are yet another burden that many businesses will struggle to shoulder.
The survey of almost 300 business leaders in the UK also found that technology and insurance are the sectors worse impacted by late payments, with a third of respondents in each of these sectors experiencing late payments on a monthly basis. Businesses in the healthcare and property industries also regularly fall victim to late payments, with 28 per cent experiencing monthly late payments.
Commenting on the findings, Lauren Couch, Managing Director at Growth Lending said: “Our research has revealed the true extent of the late payments issue and the sheer amount of capital that is tied up in unpaid invoices.
“SMEs are currently facing a cocktail of challenges, with the rising cost of doing business, geopolitical uncertainty and soaring inflation creating cash flow issues. Late payments are adding to these challenges and as we head into the Christmas period securing payment from customers is likely to become increasingly difficult.
“Businesses are also being held back from growth, unable to utilise the money tied up in unpaid invoices to invest in areas crucial to success, such as product development, hiring talent and sales and marketing. For those SMEs for whom Christmas is the biggest trading period, they are lacking capital to increase stock, hire seasonal staff and reap the benefits from higher custom.
“Invoice finance is one solution to unlock funds tied up in a company’s debtor book, but our research shows that awareness is low. In fact, 49% of those surveyed said they were unaware of invoice finance as a form of funding. As a lender, we have a responsibility for increasing awareness of the support available and helping SMEs to successfully navigate the challenges of the current economic landscape, as well as continue on their growth journeys.”
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