Late payments cause UK SMEs to miss out on over £250 billion

A report from Siemens Financial Services shows that late payments cause UK SMEs to miss out on over £250 billion of liquid cash flow. 

UK SME's account for more than 40% of private sector turnover making them an essential part of the economy. Delayed payments can threaten ability to trade, stifle growth and recruitment and in the worst case lead to insolvency. 

Compared to larger companies, SME's suffer disproportionately due to their position in the supply chain, usually towards the end. Businesses with turnover of under £1m wait on average 72 days for payment and those with a turnover of between £1m and £10m wait on average 53 days. Both are significantly longer than the largest businesses which typically wait 48 days. 

It is clear that late payments are an acute cause of concern for SMEs. In a survey of 1000 SMEs, 23 per cent report that late payments had put them at risk of closure. For a significant proportion, the risk of closure becomes reality; insolvency trade body R3 has said that late payment is a major factor in one in five corporate insolvencies. Quite apart from these visible consequences, many sources allude to the impact of late payments on SMEs’ appetite for investment and willingness to hire.

Although companies view outstanding bills as a drain on their cash flow, solutions such as invoice finance can provide a solution, so that invoices can be in effect leveraged to unlock funding. By using invoice finance, when a company invoices their customer, up to 90 per cent of the approved invoice total is straightaway advanced by the finance provider, with the remaining ten per cent paid once their customer settles the balance.

Clearly, small businesses are prioritising paying for rent (4.6 per cent) and employee wages (19.4 per cent). Nevertheless, with more cash at their disposal, taking on extra staff, more adventurous marketing, expansion into new product or service lines, or new territories could all be options for businesses to consider.

If you’d like to find out more about alternative business finance facilities, we’d love to be able to help. Why not give Regency a ring today on 0161 280 4010, drop us an email at lynnew@regencyfactors.com or browse our website for more details on how our facilities work.