Small and medium-sized (SME) business leaders have issued a warning that late payments have reached new heights since the COVID-19 pandemic crisis and it is putting their recovery at risk.

New research from Intuit QuickBooks has revealed that while chasing late payments has always been a challenge for SMEs, one in five (21%) believe the problem is at its highest level since the pandemic.

Almost two thirds (64%) of SME business leaders fear late payments could lead to their business going under in the future. Of these, more than a quarter (26%) worry this could happen within three months, while 16% suggest an even shorter timeframe of just one month, highlighting the urgency of addressing the issue.

Cashflow is one of the biggest concerns for SMEs, who typically do not have extensive financial reserves. Late payments disrupt cashflow and therefore seriously jeopardise SME’s ability to fund necessary business costs, turn a profit or expand. COVID-19 has created an unprecedented environment for SMEs, with many having to invest in new ways to engage customers despite turnover and profits being massively reduced due to lockdown.

Overall, half (52%) of SMEs business leaders have experienced late payments since COVID-19 hit. Businesses classed as ‘small’ (with 10-49 employees) and ‘medium’ (50-249) are significantly more likely to have been affected at 67% and 72% respectively. This compares to 26% of sole proprietors and 46% of micro-businesses with 1 – 9 employees.

Analysis of QuickBooks data suggests that since COVID-19 hit, around 30% of the total amount owed to small businesses is overdue, compared to a monthly average of 5-10% last year, up 25 percentage points. The average amount owed to small businesses has also risen from £2,000 to £6,000 over the same period.

As well as disrupting SME recovery through poor cashflow, late payments are also a drain on small business leaders’ time, with many hours invested in chasing down overdue invoices which could instead be spent on rebuilding their business.

Previous QuickBooks research shows that even before COVID-19 hit, around 56.4 million hours of small business’ time was taken up chasing overdue and late payments annually, the equivalent of more than a working week spent every year for the average small business.

Yet despite this administrative burden, just 11% of SMEs have used software to automatically detect and chase late invoices since COVID-19 hit.

Meanwhile, only 17% of SMEs have built the increased risk of late payments into a cash forecast plan, while 16% have factored this into a business continuity plan – suggesting the current heightened period of late payments could cause more issues for SMEs further down the line.

Chris Evans, Vice President and UK Country Manager at Intuit QuickBooks said “The issue of late payments is already well-recognised in the SME community as one of the biggest threats to cashflow and subsequently business success. However, as with many of the common hurdles facing SMEs, COVID-19 has intensified this problem: at a time when SMEs depend on getting paid on time more than ever, businesses both big and small are being forced to delay payments due to financial challenges.”

“While it is impossible to guarantee clients will pay on time, digital software can relieve the stress and administrative burden of managing late payments. Invoices are flagged and reminders automatically sent as soon as they become overdue – without business leaders having to lift a finger. Crucially, taking advantage of technology frees up valuable time that can instead be spent on what is really important for SMEs: recovering and rebuilding for a successful future.”