SME Insight: Chasing late payments is hindering small business growth

08 May 2018
3 minute read

Did you know that over a third of UK small businesses say that chasing aged debt is affecting their cash flow? 

This April we surveyed over 440 small businesses to find out just how much money they’re currently owed from customers and clients, and how this is impacting the day to day running of their business and future plans.

Headlining our insight, we found that small UK businesses are chasing an estimated £14.9bn in late payments, almost a 1bn increase compared to 6 months ago. Our research indicated that 58% of businesses are owed up to £10,000, and over 25% are owed more than £20,000. What's more, when asked if outstanding debt has hindered them from investing in their business, 50% said it has.

Here we take a closer look at the effects of late payments, and who has been affected most.

What is aged debt?  

Aged debt is a debt that is overdue by at least one or more given periods. Payment terms are normally 30 days long and all the information is often stored in a debtors report ("debtors" being individuals or companies who owe money). The report enables small businesses to keep track of the unpaid invoices and identify the overall amount they’re owed.  

Our recent research has found that 30% of small UK businesses are owed money from debtors. These businesses said that they have or would consider taking out business finance to cover cash flow issues caused by late payments. 

What are the lasting effects of aged debt?

Half of the small businesses we surveyed said that unpaid invoices have prevented them from investing in their business and growing to their full potential. When asked what problems SMEs were encountering in particular, “not being able to buy new equipment”, “not being able to pay or hire staff”, and having to “put plans to expand their business on hold” ranked the most common. 

In addition, 72% of all surveyed small businesses said they spend up to three days a month chasing money they are due. This is costing them, on average, £11,000 per year in time spent chasing late payments.  

What role do small business owners play?

With all business disruption and lost money considered, are small business owners doing enough to get back the money they are owed?  

Our research found that 40% of small business owners said they do not have a clear debt recovery procedure, which could be drawing out the process of debt consolidation. Add this to the fact that almost three quarters of those surveyed spend up to 3 days a month chasing invoices, and it’s apparent that many SMEs would be surviving on slim profit margins with a limited amount of time to dedicate to planning business growth.  

If chasing late payments is holding small businesses back from investing in growing their business, one option is to seek a small business loan, and utilise this cash boost to fund their growth plans. 

Which sectors are affected by aged debt the most?

21% of small retailers are affected by aged debt, which is almost three times as much as the second largest affected sector, IT and Technology businesses (7%). 

Both of these sectors rely heavily on the performance of their technology, but with survey respondents highlighting that the money they’re owed affects investment in their equipment, it becomes clear that late payments are more than just a cash flow issue. Not having finance in the bank is stopping businesses from buying the stock and equipment they need to grow.

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