Late payments applying pressure to small firms

6th April 2022

Small businesses are under increasing pressure, with delays in payments and staff shortages on the rise, according to research by accountancy software firm Xero.

The data reveals that late payment times continue to surge. In February, small businesses had to wait an average of 30.5 days to be paid by their customers from when an invoice was first issued. This is 1.7 days higher than the figure at the end of 2021 and the longest wait time since September 2020.

On average, payments were made 8.2 days late. This is 2.5 days longer than at the end of 2021 and the longest late payment time since August 2020. As the cost of living continues to rise, small businesses will increasingly depend on reliable cash flow to meet their own rising input costs.

The report also reveals that a surge in job creation in the first half of last year petered out in H2, while small firms employed 8.4% fewer people in February than in the same month two years ago. Xero’s analysis also shows that wage bills increased by 4.3% in February, with this coming on the back of surging inflation and a tight labour market.

Despite pressures around payments and staffing, small firms registered a sales uptick in February, with an 8.8% increase when compared with the same month in 2020.

Xero’s Small Business Index, which includes data from hundreds of thousands of small businesses, fell to its lowest rating in over a year, underpinned by a shrinking labour market. With fewer people in work or looking for work compared to before the pandemic, the data shows that there are 8.4 percent fewer people working in small businesses than there were in February 2020.

Alex von Schirmeister, Managing Director at Xero UK, said “Sustained sales growth is an encouraging sign for small businesses, but will that money go far enough in today’s current climate? It doesn’t offset the other challenges they face, and it will be difficult for them to fully recover from the pandemic until they can get the right people on board.”

“The lifeline that small firms were hoping for didn’t materialise in the Chancellor’s Spring Statement, which makes tackling late payments more crucial than ever.”

“While training schemes and an increased employment allowance are helpful gestures, the Government can and must do more to reduce the devastating impact of late payments or ‘unapproved debt’ on business owners. The lifeline that small firms were hoping for didn’t materialise in the Chancellor’s Spring Statement, which makes tackling late payments more crucial than ever.”