Late payment crisis threatens small business growth

Nearly two thirds of small businesses (62%) experience late payment issues and it is the larger ventures that are being hit the hardest – according to new research from Hitachi Capital Business Finance. Three quarters of small businesses with 10-49 employees are dealing with late payment issues (75%), compared to 50% of those who are sole traders.

At a time when an estimated 50,000 businesses collapse due to late payments[1] – and when the Government is considering plans to strengthen the powers of The Small Business Commissioner to support small businesses[2] – Hitachi Capital Business Finance asked 1,162 business owners to comment on how promptly their invoices had been paid. To obtain a detailed picture on how late payment affects the sector during a typical calendar month, a case study month – June 2019 – was adopted as the focus of the study.

With cashflow management (34%) and getting tough on late payment (24%) mentioned as top priorities for small businesses to tackle in order to achieve growth, Hitachi Capital’s data revealed that only 31% of enterprises polled had received all of their payments on time. Whilst 35% of respondents had received some payments early, 47% of respondents had received some payments up to a week late, 44% up to a month late and 32% had been paid over a month late.

Sector highlights

When comparing the figures to summer 2018, there have been variations on late payment becoming a bigger or smaller issue for business owners depending on their industry sector. Overall, small businesses in the legal and manufacturing sectors were those most likely to be hit the hardest by late payment (79% and 77% respectively). On the other end of the spectrum, small businesses in hospitality and leisure were the least likely to be paid late (34%). The legal sector took a particularly big hit with 44% still awaiting payments that were due in June. This was followed by media (36%) and construction (34%).

Looking at payments paid a week late, a month late, more than a month late and still not paid, the transport sector has seen a decrease in all late payments received.

Small businesses with 10-49 employees

The Hitachi Capital Business Finance research also found that this size of small business was the most likely not to have received invoices on time (39%). This compares with only 22% of sole traders. Nearly half of those running larger small businesses were dealing with being paid more than a month late (49%). In comparison, this was an issue for just 18% of sole traders.

Company age

Mature businesses (those trading for more than 35 years) were the most likely to be dealing with late payment issues (76%). This compares with 54% for businesses that had been trading for less than 5 years, suggesting that the latter either keep a tighter handle on their payment terms or are more likely to use modern payment systems.

Regional hotspots

Across the regions, small businesses in the North West were the most likely to be dealing with late payments (76%), followed by business owners in London (68%).

Gavin Wraith-Carter, Managing Director at Hitachi Capital Business Finance, commented: “Late payments are hindering the ability of small businesses to progress – not to mention the precious time wasted trying to chase overdue payments. Our tracking research has shown that the majority of small businesses are working hard, looking at ways to achieve growth in the testing content of political and economic uncertainty. This needs to be supported and we call on the Government to do more to ensure that small businesses are respected in the same way as big businesses – and to ensure that late payment doesn’t rock small business growth at a critical period for the economy at large.

“At Hitachi Capital Business Finance, we are adopting a Smart Finance philosophy to our products and services to help small businesses plan ahead and to be more prepared for both the quieter and busier periods of the year. We hope that our flexible repayments plan – which was born out of this very – philosophy will be a helpful tool to help manage cash flow.”