Small businesses are owed £27K in late payments on average
Late payments are a growing problem; 52% of small and medium sized businesses (SMBs) have been more affected in the past year
Two in five (41%) at risk of closing their business if late payments persist
Late payments prevent business success and impact owners personally, with 28% of those affected citing poor mental health as a result
But those using financial management software see number of overdue payments reduced (25%) and improved cashflow (21%)
London, UK - 11 September 2023
Small and medium sized businesses (SMBs) are currently owed an average of £27,214 in late payments*, according to new research from Intuit QuickBooks, as SMBs estimate one in six invoices (17%) with customers or suppliers are overdue.
And the problem is growing - more than half (52%) of SMBs agree they have been more affected by late payments in the last year. Frustratingly, the most common reason an invoice goes unpaid is because it was simply forgotten (23%) - although the supplier experiencing their own cash flow issues and not being able to pay comes in a close second (20%).
Late payments impact business owners’ wellbeing and finances
The impact of late payments on business success is so significant that two in five small business owners (41%) say there is a real risk of their business being forced to close in the next year if the same level of late payments continue. This proportion rises significantly to 53% of SMBs in London and 57% in Scotland.
For business owners, this can have a personal impact. Amongst those who have been impacted personally**, 35% have been forced to dip into personal savings to keep the business afloat, while 31% have been unable to save at all. Worryingly, more than a quarter (28%) have experienced poor mental health.
Late payments also damage SMBs’ future chances of business success. Amongst those impacted***, late payments have resulted in SMBs being unable to reinvest in the business (26%) or achieve their business objectives (20%). There is also a knock-on effect as 26% have not been able to pay an invoice to another small business (26%) or pay their own suppliers (25%).
At an administrative level, late payments waste time - in a typical week, SMBs spend an average of four hours chasing late payments, adding up to more than 8.5 days per year.
Helen Matthews, Founder of independent paddle-boarding business, SUP With Us, comments: “Cash flow is critical to me as a small, independent business, and I rely hugely on payments coming in on time. Being paid late for my services can really throw my budgeting plans into disarray, and a bad season can even impact my ability to pay my bills and rent on time. The weather-dependent nature of my business means that in a typical English summer of wind and rain my income can fluctuate, and having to chase down late payments adds to the stress of worrying about the weather and keeping my business going.
Financial management software removes barriers to faster payments
With SMBs feeling annoyed (30%), uncomfortable (23%) and at risk of damaging client relationships (22%) when chasing late payments, solutions that automate this process - and help prevent overdue payments in the first place - can be extremely valuable.
Three in five (60%) SMBs say they are not currently using financial management software for pay-enabled invoicing in their business (i.e. software that makes it simple for customers to pay faster).
But for those who do, a quarter (25%) have successfully reduced the number of outstanding invoices on their books, leading to stronger cashflow (21%) - while a fifth (21%) have improved relationships with customers due to not having to chase invoices manually.
Helen Matthews adds: “It’s surprising to me that so few SMBs are using software to help combat the issue of late payments. I use QuickBooks as my financial management software, which puts the information for late payments all in one place and allows me to stay on top of what I’m owed. It even automates chasing them for me, which is always the most awkward part!”
Nick Williams, UK Product Director at Intuit QuickBooks comments: “Late payments continue to be a significant barrier to small business success. Clients simply forgetting to pay on time is not acceptable when the impact can be so severe. There is also a clear knock-on effect when SMBs are not paid within their terms, with many then unable to pay other suppliers - creating a chain of cashflow problems that adds up to a big hit to our economy.
“Fortunately, the research demonstrates there are proven benefits to financial management software when it comes to invoices. Not only does pay-enabled invoicing make it easier for clients to pay with the click of a button, but the software also generates automatic reminders, removing the frustration and wasted time experienced by many SMB owners. Accountants are also valuable partners when it comes to spotting late payments trends and mitigating the impact on cashflow. With cash being king, this makes it not only easier for SMBs to run their business, but to succeed.”
Sources
Research conducted by YouGov amongst 2,008 owners and senior decision makers at small and medium-sized businesses (up to 249 employees), between 2nd - 16th August 2023.
* Late payments are defined as invoices owned that have not been paid within the agreed payment terms
** Amongst the 28% of respondents who agree late payments have had an impact on their personal life
*** Amongst the 42% of respondents who say late payments have had an impact on their business in some way
Disclaimer
This information is intended to outline our general product direction, but represents no obligation and should not be relied on in making a purchasing decision.
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