Slow payment culture damaging UK small businesses
The UK’s slow payment culture is severely impacting on the ability of small firms to do business as uncertain cash flows are limiting growth, new research has found.
Of 900 small business owners taking part in the latest Close Brothers Business Barometer, two thirds said the nation’s late payment culture is an issue.
The situation was notably worse in London and the South West, with 73% and 72% of owners respectively naming slow payments as a problem, although this was lower than in Northern Ireland where the figure rose to 87%.
The research pointed to a number of issues that arise from late payments, listing examples of cases where directors were deferring their own salaries or increasing their overdrafts in order to remain liquid.
An alternative was that businesses would in turn pay their own suppliers late, meaning that a vicious circle often exists where a business is constantly owed.
Those with severe financial difficulties may consider administration to get some much-needed breathing space, with the aim of rescuing the company as a going concern.
The issue was also found to be present across a range of industries and sectors, showcasing that it is a countrywide problem.
Nearly four in five transport firms said they were affected by late payments, while 74% of manufacturing firms and 73% of printers have experienced similar issues.
The issues can have lasting consequences too, as late payments can damage a firm’s reputation, impact on their supply chain and hit their credit rating, which in turn can make accessing finance more difficult.
Around three in four SME owners said they felt existing legislation regarding slow payments is not adequate, although that figure rose to 85% in the East Midlands.
Should a business owner be concerned over the health of their business, they may wish to undertake an independent business review to assess the situation.
Such an approach will recognise potential risks and can highlight areas where improvements can be made, especially among firms already experiencing cash flow issues or a period of tough trading.
By Phil Smith