The cost of late payments is causing many small businesses to wobble

Messy office occupied by a professional worker. Image by Tim Sandle.

Overdue invoicing is a major concern for business owners. Having a consistent flow of money is vital to the running of any business, yet for small companies, the situation creates particular uncertainty over the ability to cover monthly operating expenses and pay wages.

In a new survey of 1,000 U.K. business leaders conducted by NerdWallet, over half of firms (at 55 percent) revealed they are currently still waiting for invoices to be paid from the previous tax year (2022/23), with many noting an increase in unpaid invoices in comparison to the last year. (46 percent of firms indicated they had more outstanding invoices than the previous tax year). The survey was conducted between 14 and 18 April 2023.

The review also discovered that while one third of unpaid invoices were less than a month overdue, 20 percent of overdue invoices were four to six months late.

The main response when faced with a failure to pay was with a telephone call or letter. The degree of success in terms of this action was variable. A few firms recourse to debt collection agencies to receive payment.

Although businesses in the U.K. are entitled to charge interest of up to 8 percent plus the Bank of England base rate for transactions, the research found very few of the companies polled had done so. One reason for this was ignorance of the legislation and the action that can be taken against late payers.

In terms of the impact, in some cases this was substantial. The survey found that 39 percent of firms either already had to, or thought they might have to, make reductions to their overheads. Actions included downsizing office spaces and moving to remote working, alongside cutting team social spending budgets.

Recruitment is also taking a significant hit, with 28 percent of firms stating they are pausing their recruitment efforts due to having unpaid invoices. Additionally, a fifth of business owners said they had frozen planned pay rises for their employees. Another fifth of firms indicated they were considering making staff redundant, again to compensate for their late payments.

NerdWallet’s business finance expert, Connor Campbell, tells  Digital Journal: “At a time when many businesses across the U.K. are already facing an extremely turbulent period financially, the stress and uncertainty of unpaid invoices is an additional headache that no organisation will welcome.”

The cost of late payments is causing many small businesses to wobble
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