- Roughly 52% of small-and-medium sized enterprises (SMEs) in the U.K. are waiting for late payments, according to a recent Zurich Insurance study. In total, these firms are owed approximately £44.6 billion ($57.9 million) from their peers.
- The study also found large businesses are responsible for approximately 53% of the financial delays. The average small business is owed roughly £16,250 ($21,000) and can often be left waiting up to three months — or six months in the worst of cases — for payment, PYMTS reports.
- The U.K. recently launched an initiative to monitor supplier terms of payment to correct this issue. However, most small businesses (75% according to the Zurich survey) do not believe a national enforcer will help correct the late payment issue, although 78% agree greater enforcement is needed.
Delayed payments by larger corporations are hurting small and medium-sized businesses, and it's not always due to financial trouble.
Extended terms of payment became popular during the recession but are now causing problems with cash flow, low owner and employee morale, poor credit, and more frequent business failures. In some cases, the company may be late on payments due to failing business, but payments may also be withheld to pad the books, especially during annual report time. Some companies have even turned to alternative financing or blockchain-based loans to support small businesses while they wait for payment.
However, the practice of delaying payment, or even extending terms of payment is beginning to ripple down and affect performance, as shown by Zurich's recent report. In fact, delayed payments may even be a source of renewed financial risk across supply chains.
In the U.K., it is estimated that some 50,000 business closures could be avoided annually if payments were received in a timely fashion, according to a study published by the U.K. Department for Business, Energy & Industrial Strategy. In addition, nearly two in five or 39% of small business owners state that late payments have damaged cash flow, while nearly 25% admit that late payments have caused overdrafts or worse, according to Insurance Business Magazine.
With over $50 million in payments outstanding, thousands of business closures and buyer bankruptcies on the rise, financial risk management is growing in importance to supply chains. The U.K. is addressing this through more close monitoring of business contracts, but will that be enough?