Vicious cycle: SMEs paid late owed £50 billion to their suppliers in 2018

Unpaid invoices or late payments can set off a chain reaction that causes delays and instability in supply chains and the wider economy. SMEs in the UK that were paid late ended up owing money to their suppliers in 2018, leading to a cycle of late payments.

Xero's Small Business Insights report revealed 48% of small business invoices are paid past their due date, meaning 26% of businesses struggle to pay their own suppliers as a result. Small businesses in the country pay their supplier invoices six days late on average. And they owed their suppliers an average of £8,811 in overdue bills in December 2018, a debt of over £50 billion across the small business economy.

The Federation of Small Businesses (FSB) suggests that tackling late payments could add a potential £2.5 billion to the national economy.

From the research, Xero said 50,000 businesses fail every year due to cash flow issues. And almost a third (28%) of SMEs in the UK consider cash flow a key challenge. Statistics from Xero’s report also show that only half (49%) of SMEs were cash flow positive in any given month in 2018.

Late payments introduce unneeded uncertainty to small businesses and can stifle growth plans. The small business owners surveyed were asked to imagine a world where they are paid on time. More than a quarter (27%) of them said they would be in a better position to grow as they would find it easier to plan for expansion when they know they will have the money to pay for it. 28% said they would feel more confident in their decisions. Almost a third (29%) said they expected to see an increase in their productivity if they were not constantly worried about cash flow.

The report by Xero recommended some solutions to protect themselves from late payments. They include negotiating shorter payment terms and initiating discussions about payment terms with the customer as part of the initial agreement. Other techniques include building good relationships with customers and suppliers, being vigilant in chasing payments and making it easy for their customers to pay.