In August 2024, receivables software experts, Upflow published research suggesting that well over half (57%) of outstanding B2B invoices are overdue and that a third (33%) were taking longer than 90 days to be settled.
More research into the late payment phenomenon by accounting software specialists, FreeAgent confirmed in August 2024 that late payments in the UK had increased by 49% in the past year. Another software business, Xero also announced in July 2024 that late payments had surged in Q2 2024 by 4% in just three months and are now running at the highest rate since before the pandemic. Its research earlier in the year showed that delayed payments cost small businesses £1.6bn in 2023, double that seen in 2021.
The campaign against late payment
These depressing statistics come despite a long-running, concerted but largely unsuccessful campaign against late payments, which are universally accepted to be a financial penalty mainly imposed arbitrarily by large businesses on the SME community, although it is also a feature among SMEs as they are forced to transfer the pain down the food chain until it reaches micro businesses and the self employed.
It is now more than twenty five years since the Late Payments & Commercial Debt (Interest) Act was introduced in 1998, a measure intended to deal a death blow to the late payment practices which had plagued the UK economy for decades, but which sadly still kills more businesses than any other single factor, apart from bad management.
It is also now over fifteen years since the Prompt Payment Code (PPC) was introduced to the UK in 2008 as a voluntary code of practice, administered by the Office of the Small Business Commissioner.
The new Labour administration came into power this year with an election manifesto commitment to “stamp down” on late payments to small businesses, although detailed proposals are still awaited.
Transparency on late payment
Towards the end of its time in office, the last government finally grasped the nettle of naming and shaming late payers. In October 2023, the Department for Business and Trade announced a series of proposals in October 2023 intended to improve the situation.
It then published a more detailed review paper a month later. The main focus of these actions is to improve transparency and to make the worst late payer culprits more visible through mandatory public disclosure of their payment practices.
The impact on late payment victims
Financial
The Xero research highlights the additional interest burden of £1.6bn borne by businesses because of late payments.
Workload
Xero reported that on average the heads of small businesses were spending 10% of their day chasing unpaid invoices, while 20% of their respondents also complained that this caused a backlog of work.
Productivity
37% of the Xero respondents say that late payments impact their business’s productivity.
Wellbeing and stress
Xero suggest that 52% of British business owners are concerned about overdue debts and worry about their cash flow as a result.
What can businesses do to limit late payments?
The Law Society recently published a simple guide for business owners and managers on dealing with late payments. The tips include:
- Know your customers and keep due diligence on them up to date.
- Be clear about payment terms.
- Avoid accepting cheques as payment.
- Invest in credit control.
- Don’t delay in chasing a late payment – start the first day the debt is overdue.
- Claim interest on overdue amounts and make this policy clear from the outset.
- Be flexible over large amounts due when necessary.
Why is late payment still tolerated?
Put simply, late payment is immoral and unacceptable: it’s an unauthorised use of a supplier’s borrowing facilities and cash flow. The interest received or interest saved by the late payer has been stolen from the supplier. To the extent that it’s discretionary on a ‘won’t pay yet’ rather than a ‘can’t pay yet’ basis, it’s commercial blackmail and an abuse of power within a commercial relationship.
It’s also dangerous to the integrity of supply chains, which are already fragile enough without gratuitously forcing suppliers over the financial cliff by delaying payments. It’s no wonder that corporate insolvencies are at an all time high, with late payment as a pernicious practice across the UK business world.
Getting expert help
Given the enforced dedication of so much scarce management resource and bandwidth to debt collection, it makes sense to consider calling in independent assistance with the process whether it might be to improve pre-engagement due diligence on new customers, tighten up collection procedures or chase significant overdue debts. Properly briefed and monitored, outside help on this crucial front will be a net benefit and not just an extra expenditure.
How we can help
We have extensive experience assisting business owners and directors, and we will always work with you to find the best solution for you and your business.
One of our Partners would be more than happy to have a non-obligatory confidential chat with you. We can be contacted at rescue@opusllp.com or call us on0203 995 6380 and we will arrange for a call with one of our Partners.