52% of small businesses experience late payment delays

16th March 2023

A new report by the Federation of Small Businesses (FSB) has found that 52% of small businesses experience late payment delays.

The FSB says the report lays out the failure of current measures in place to hold late payers to accounts and demands small businesses are given better protection. The survey found that 25% of companies have reported an increase in late payments and that education, construction, administrative, professional, scientific, transportation, IT, arts and human health and social work were among the most affected sectors

As a result of late payments 37% of small businesses had applied for credit to manage their cash flow.

The FSB says that thousands of small businesses are being held back not by a lack of ambition but by a systemic poor payment culture. There remains a lack of adequate protection for the self-employed and small businesses. Previous FSB research found that if late payments had been made on time and as promised, in line with other comparable countries, 50,000 business closures could be avoided each year.

The definition of prompt payment for a small business supplier, contained in the voluntary Prompt Payment Code, is to pay 95 per cent of invoices within 30 days. That is a far-off dream for many small firms. Our research has found in every quarter in 2022, the majority of small businesses experienced late payments. For one in four small businesses, they reported that late payments had got worse, quarter-on-quarter.

The small business community isn’t alone in its concerns about late payment. The public agrees too. A consumer attitudes poll conducted by Public First, for the Federation of Small Businesses, found that a quarter of the public felt that suppliers should be paid within a week of invoice, which is a far cry from the reality.

The FSB says that it needs to become an urgent priority for the UK Government, or for those competing to become the next UK Government, to eradicate late payment. Existing initiatives, while commendable, were necessary but not sufficient. The economic headwinds that businesses face make addressing late payment more critical than ever. If you aren’t convinced by the moral argument that it’s simply wrong for larger businesses to treat smaller suppliers as a form of free credit, or indeed by the economic argument that solving this would be the single most effective measure to increase UK productivity, then you might be convinced by the fact that late payment causes small business owners to fear for the future of their business, undermining their mental health.

Since 2020, the small business and self-employed community in the UK contracted by a net half a million. With smaller businesses generally having much lower cash reserves than their larger counterparts, the clear risk is that late payment was already a contributory factor to this 10 per cent shrink and will now cause this number to rise. This report shows there is public support for the current UK Government, or a potential incoming Government, to get a grip and put in place the necessary reforms and controls. Clamping down on late payment will provide a massive boost to the economy and comes at no cost to the public purse. It should be right at the top of any UK agenda for growth. The FSB welcomes the fact that Government is looking at this problem, with its Prompt Payment and Cashflow Reviews. However, a review doesn’t pay the bills – after numerous reviews in the last decade, it is action that matters. This report shows the way, outlining the evidence from small businesses, and solutions necessary to make progress. The FSB is calling on the Government to implement these solutions with haste.

FSB Policy Chair Tina McKenzie said “Enough is enough. Late payments in the UK have continued to spiral out of control, while since 2019 Ministers lost the momentum and enthusiasm to make a difference. We now need to reinvigorate this agenda, and to push for growth and productivity – the best way to do this is to sort out the UK’s poor payment culture. Our report highlights the urgent need for change and the importance of fair payment practices, and sets out a clear set of reforms.”

“Small firms are already being stretched beyond their limits with rising energy bills, rampant inflation, and a mounting cost of living crisis. Cash flow is already tight, and that is compounded by being kept waiting months for invoices to be paid, which a serious roadblock to growth and investment. This also hinders productivity due to the excessive time and effort expended on chasing late payments. It’s a double whammy that is stifling business success, and in turn holding back the UK’s economic recovery – but is something that’s entirely avoidable.”

“Big businesses shouldn’t be using small firms as a bank. It’s time for them, too, to step up and take responsibility for poor payment practices.”

“These reforms will make a clear difference to the bottom lines of small firms right across the economy. Thousands of small firms are unnecessarily going bankrupt every year due to late payment practices. We are determined to eradicate this issue and the current Government could use Time is Money as a catalyst for change.”

“The UK is almost unique in being a place where it is acceptable to pay small businesses late, and that will remain the case without further action.”