Late payments are ‘business as usual’ for small businesses in difficulty

Late payments from customers are ‘business as usual’ for many small business owners in difficulty, according to new research from the Money Advice Trust, the charity that runs Business Debtline. The free business debt advice service helped more than 52,400 self-employed people and other small business owners last year.

Nearly half (45%) of callers to Business Debtline surveyed have experienced problems with late payments from customers, with most typically having to wait up to two months beyond payment terms to receive the money they are owed.

A new survey of Business Debtline callers affected by late payments reveals that the cash flow problems they cause are having a significantly negative impact on both the viability of small businesses, and the personal wellbeing of their owners.

A common problem
Nearly half of Business Debtline callers (45%) have experienced late payments. Late payers include large businesses (reported by 44% of callers affected), other small businesses (44%), local authorities (18%), other public sector bodies (10%) and charities (7%), as well as individual consumers.

  • 62% of callers who experience late payments said they do so fairly or very often
  • 69% said they typically have to wait up to two months beyond the payment date
  • 32% said that they had experienced at least one occurrence of non-payment

Driven by cash flow problems
The research found a range of drivers behind late payments, including customers adopting this as a business practice and as a way to manage their own cash flows.

  • 59% said their customers used late payments to manage their own cash flows
  • 35% felt their customers used late payments, knowingly, as a business practice
  • 57% reported that their customers gave no reason for paying late

Causing serious difficulties
Business Debtline callers report that the late payments they have experienced have had serious consequences for their business and personal wellbeing.

  • 42% spend more than a tenth of their working time chasing late payments
  • 75% reported that late payments have affected the viability of their business
  • 87% said late payments had a negative impact on their personal wellbeing

Worryingly, only 41% of Business Debtline callers affected by late payments said they knew what to do to chase customers who had not paid on time, and only 16% knew where to turn for advice on dealing with the problem. Four in 10 (39%) worried that if they chased late payments, they would lose future business – but 84% said they had done everything they could to resolve the problem.

The charity has written to newly-appointed Minister for Small Business, Paul Scully MP, recommending stronger measures to tackle late payments in the wake of the government’s recent call for evidence on payment practices.

The charity’s recommendations include:

  • Re-launching and strengthening the Prompt Payment Code, with a commitment from all signatories to pay their small business suppliers within 30 days or less where faster payments/fintech solutions are already in place.
  • Introducing fines for persistent late payers, and expanding the Small Business Commissioner’s remit to include late payments between small businesses.
  • Reviewing how the use of statutory interest on late payments of commercial debts could be strengthened as a means of improving payment practices.

Joanna Elson OBE, chief executive of the Money Advice Trust, the charity that runs Business Debtline, said: “Late payments are unfortunately ‘business as usual’ for many small business owners who are struggling – and this can have serious consequences for both the viability of the businesses they run and their personal wellbeing.

“The government has already taken several positive steps on late payments, including requiring mandatory reporting on the payment practices of large businesses, and creating the Office of the Small Business Commissioner.

“Stronger actions are necessary, however, to deliver the scale and pace of change required in payment practices. We need to fundamentally change the culture – so that late payments are no longer seen as an acceptable business practice.

“Taking into account their contribution to the economy and our communities, we owe it to small business owners to do more to tackle this problem.”