Action needed for small businesses to stop ‘domino effect’ of late payments

The Money Advice Trust, the charity that runs Business Debtline, has called for further action to support small business owners and self-employed people affected by late payments, where businesses are uncertain when the money they have earned will be paid.

In its response to the Department for Business, Energy and Industrial Strategy’s call for evidence on tackling late payments, the charity recommends that the Small Business Commissioner be given the power to fine firms that are persistent late payers, together with a broader remit covering public sector organisations.

Research from Business Debtline published earlier this month reveals the scale of the issue of late payments and its impact on small business owners and people who are self-employed. In its report, Taking care of business nearly half (45 percent) of callers to Business Debtline surveyed said they experienced problems with late payments. While late payments were not generally the main reason for getting into financial difficulty, it did create cash flow issues and exacerbate debt problems by making it more difficult to pay bills on time.

Findings also showed that using personal credit to cover essential business costs was common. Six in ten (61 percent) of Business Debtline clients surveyed had used personal credit to pay for business costs, including stock, energy bills and travel, in the last two years.

The charity believes that an improved payment culture could reduce the cashflow issues that many of the callers to Business Debtline experience and reduce the need to resort to personal credit to pay for business costs.

Self-employment now stands at 15 percent of total UK employment and small businesses continue to help power the UK economy. The report – Taking Care of Business – highlighted eight key challenges, including late payments, facing the people behind these businesses and the steps needed to support them.

Joanna Elson OBE, chief executive of the Money Advice Trust, the charity that runs Business Debtline, said: “With small business ownership and self-employment continuing to grow and help drive the economy, it is only right that the people behind these enterprises are given the best opportunity to flourish.

“However, the recurring issue of late payments remains a barrier to many businesses succeeding. Our advisers hear first-hand the financial impact of late payments on businesses’ abilities to pay essential business costs such as business rates, energy bills and suppliers. This can create a domino effect where late-payment related problems cascade through the supply chain.

“The government’s focus in this area is welcome. It is now crucial that further steps are taken to improve payments culture, including giving the Small Business Commissioner the power to fine persistent late payers. We look forward to working with all those involved in this area to take forward these recommendations.”