UK small businesses experience the highest number of late payment days in two years

While there are concerns about the United Kingdom entering a recession, Xero reports that small businesses are already feeling the pinch as the number of days that customers took to pay their overdue invoices rose to a two-year high.

In September, small businesses waiting to get paid rose by 0.6 days to 30.6 days, which is the longest waiting time in two years and the sixth consecutive month of lengthening payment times.

Consequently, late payment days also rose by 0.5 days to 8.2 days, which was also the highest since August 2020.

The Xero Small Business Index for the United Kingdom fell by 4 points to 87, and it continues to stay below its long-term average since the pandemic.

Even sales growth has slowed for small businesses. It rose just 3.6% y/y, after a 12.7% y/y rise in August. The September result is the smallest rise since February 2021.

The report points to inflation rising much faster than sales growth, indicating that small businesses are selling fewer goods and services than they did a year ago.

Meanwhile, small business jobs fell 4.0% y/y in September – the sixth consecutive month where jobs are lower than they were in the same month in 2021. Although the decline was smaller than the previous four months.

The weakness in jobs remains centered on industries that traditionally employ large numbers of people such as manufacturing, hospitality, construction, and retail.

While there are limits to how much businesses can neutralize external forces such as rising energy bills and rent, there are many things that are within their control.

At RIABU, we think that SMEs' top priority should be implementing the best systems for managing invoices.

Here is why: the higher your overdues, the less efficient your receivables management, the less sales time your salesmen have for selling, the greater the lost revenue. Less sales also means poorer customer service, which could create an unhealthy cycle of less business.

Hence, RIABU advocates measuring account receivables using the term Days Sales Outstanding (DSO) so you can track how effectively you are managing your payment cycle.

Entrepreneurs are skilled at both producing and selling goods. However, they frequently wait until it is too late to pay attention to the billing procedure.

By far, the biggest contributor to business failure is a lack of adequate working capital to operate your company on a daily basis. Never let your guard down as an SME when it comes to receiving payments on time.

Get more tips on effective cash flow management from our book, Let The Cash Flow. To find out more about how RIABU helps small businesses get paid on time, visit RIABU.com