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  • Over two fifths of SMEs hit by late paying customers
  • Government needs to tackle UK’s late payments culture
  • SMEs urged to take back control of payments

Government efforts to tackle the UK’s late payments culture have so far failed to protect hundreds of thousands of small and medium-sized enterprises (SMEs) from exploitative customers who fail to pay their bills on time, Close Brothers Invoice Finance warned today.

The Close Brothers Business Barometer, the quarterly survey of SME sentiment on a broad range of issues, reveals that over two fifths of firms are still suffering with a major payment delay problem.

Successive governments have sought to tackle the issue through a variety of initiatives, including the Prompt Payment Code, which has seen nearly 2,600 firms sign up to commitments such as a promise to pay invoices within 30 days. However, Close Brothers’ data shows 43% of all SMEs still see overdue invoices as a problem for their business – a third of these firms (30%) warn the issue is seriously affecting their ability to trade. 

Close Brothers’ research suggests delayed payments are causing major cash flow headaches for large numbers of SMEs and adding costs to their businesses as they waste time and money chasing overdue invoices. A third of UK SMEs (32%) estimate that they are owed more than £40,000 in late payments.

David Thomson of Close Brothers said SMEs needed better protection from government and regulators. “The UK’s record on late payments is very poor – while other countries have seen late payment rates come down as their economic fortunes have improved, the UK’s business culture seems to be one in which it is acceptable not to pay SMEs on time,” he said. “SMEs often lack the power to hold large organisations to account and need greater support from government to help them do so.”

Close’s research mirrors other assessments of the UK’s late payments problem. A series of reports and surveys have highlighted the issue, with organisations such as the Asset Based Finance Association warning the problem is escalating in some industries, stifling growth and even leading to business failures.

"SMEs need better statutory protection and an independent champion prepared to take action on their behalf,” Close Brothers’ David Thomson added. “Many SMEs feel very uncomfortable challenging larger businesses, on which they may be reliant for substantial amounts of business, over late payments; this is where regulatory action is essential.”

Mr Thomson also urged SMEs to take action wherever possible. “It’s crucial that SMEs try to grip this issue themselves,” he said. “You need to be crystal clear about your payment terms at every stage of your dealings with customers – and to chase invoices the moment they become due; consider credit checks on new customers and don’t accept poor practices from your existing customers.”

In December 2017, the Small Business Commissioner was launched with the aim to resolve disputes between SMEs and larger organisations over late payments. The scheme hopes to change the UK's late payment culture, and ensure SMEs are treated fairly.

*These statistics have been updated and are correct as of August 2020.

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