Small and medium sized businesses (SMBs) are currently owed an average of £27,214 in late payments1 according to new research from Intuit QuickBooks, as SMBs estimate one in six invoices (17%) with customers or suppliers are overdue.
The research found that the problem is growing – more than half (52%) of SMBs agree they have been more affected by late payments in the last year. Frustratingly, the most common reason an invoice goes unpaid is because it was simply forgotten (23%) – although the supplier experiencing their own cash flow issues and not being able to pay comes in a close second (20%).
The impact of late payments on business success is so significant that two in five small business owners (41%) say there is a real risk of their business being forced to close in the next year if the same level of late payments continue. This proportion rises significantly to 53% of SMBs in London and 57% in Scotland.
For business owners, this can have a personal impact. Amongst those who have been impacted personally 35% have been forced to dip into personal savings to keep the business afloat, while 31% have been unable to save at all. Worryingly, more than a quarter (28%) have experienced poor mental health.
Late payments also damage SMBs’ future chances of business success. Amongst those impacted, late payments have resulted in SMBs being unable to reinvest in the business (26%) or achieve their business objectives (20%). There is also a knock-on effect as 26% have not been able to pay an invoice to another small business (26%) or pay their own suppliers (25%).
At an administrative level, late payments waste time – in a typical week, SMBs spend an average of four hours chasing late payments, adding up to more than 8.5 days per year.
With SMBs feeling annoyed (30%), uncomfortable (23%) and at risk of damaging client relationships (22%) when chasing late payments, solutions that automate this process – and help prevent overdue payments in the first place – can be extremely valuable.
Three in five (60%) SMBs say they are not currently using financial management software for pay-enabled invoicing in their business. But for those who do, a quarter (25%) have successfully reduced the number of outstanding invoices on their books, leading to stronger cashflow (21%) – while a fifth (21%) have improved relationships with customers due to not having to chase invoices manually.
Nick Williams, UK Product Director at Intuit QuickBooks said “Late payments continue to be a significant barrier to small business success. Clients simply forgetting to pay on time is not acceptable when the impact can be so severe. There is also a clear knock-on effect when SMBs are not paid within their terms, with many then unable to pay other suppliers – creating a chain of cashflow problems that adds up to a big hit to our economy.”
“Fortunately, the research demonstrates there are proven benefits to financial management software when it comes to invoices. Not only does pay-enabled invoicing make it easier for clients to pay with the click of a button, but the software also generates automatic reminders, removing the frustration and wasted time experienced by many SMB owners. Accountants are also valuable partners when it comes to spotting late payments trends and mitigating the impact on cashflow.”