UK SME recovery under threat as six in ten say late payments are hindering survival
A fifth (21%) of SME business leaders say the problem of late payments is at an all-time high since COVID-19
64% believe late payments have reached an unsustainable level for their business' survival, with 16% stating it may cause them to go under in the next month
Businesses with 50+ employees are more likely to have been negatively impacted by late payments since COVID-19 hit (72%)
London, UK - 9 July 2020
Small and medium-sized (SME) business leaders have issued a stark warning that late payments have reached new heights since COVID-19 hit – and it is putting their recovery at risk.
The new research from Intuit QuickBooks1 reveals that while chasing late payments has always been a challenge for SMEs, one in five (21%) believe the problem is at its highest level since the pandemic.
Almost two thirds (64%) of SME business leaders fear late payments could lead to their business going under in the future. Of these, more than a quarter (26%) worry this could happen within three months, while 16% suggest an even shorter timeframe of just one month, highlighting the urgency of addressing the issue.
Cash flow is one of the biggest concerns for SMEs, who typically do not have extensive financial reserves. Late payments disrupt cash flow and therefore seriously jeopardise SME’s ability to fund necessary business costs, turn a profit or expand. COVID-19 has created an unprecedented environment for SMEs, with many having to invest in new ways to engage customers despite turnover and profits being massively reduced due to lockdown.1
Overall, half (52%) of SMEs business leaders have experienced late payments since COVID-19 hit. Businesses classed as ‘small’ (with 10-49 employees) and ‘medium’ (50-249) are significantly more likely to have been affected at 67% and 72% respectively. This compares to 26% of sole proprietors and 46% of micro-businesses with 1 – 9 employees.
Analysis of QuickBooks data2 suggests that since COVID-19 hit, around 30% of the total amount owed to small businesses is overdue, compared to a monthly average of 5-10% last year. The average amount owed to small businesses has also risen from £2,000 to £6,000 over the same period.
Automation can eliminate administrative burden of late payments
As well as disrupting SME recovery through poor cashflow, late payments are also a drain on small business leaders’ time, with many hours invested in chasing down overdue invoices which could instead be spent on rebuilding their business.
Previous QuickBooks research3 shows that even before COVID-19 hit, around 56.4 million hours of small business’ time was taken up chasing overdue and late payments annually, the equivalent of more than a working week spent every year for the average small business.
Yet despite this administrative burden, just 11% of SMEs have used software to automatically detect and chase late invoices since COVID-19 hit.
Meanwhile only 17% of SMEs have built the increased risk of late payments into a cash forecast plan, while 16% have factored this into a business continuity plan – suggesting the current heightened period of late payments could cause more issues for SMEs further down the line.
Harry Pill, a freelance video cameraman and editor, said:
“When I was starting out, I remember suffering in silence when clients took many months to pay because I didn’t want to sour the relationship and jeopardise future business. One thing that helped me was implementing a 50% up front policy which effectively halved my risk and drastically improved my cashflow.
Since COVID-19, with overheads remaining but work dwindling, service providers need as much support as possible. As well as paying late for completed work, some clients have just ceased communications on projects that were in mid-production. In addition to any expenses incurred, this leaves me with staff to pay, usually within 30 days of the work being carried out, and no guarantee I will recoup my costs from the unresponsive client. Add these expenses on top of my regular outgoings, and the numbers quickly spiral out of control. This is certainly a testing time.”
Chris Evans, Vice President and UK Country Manager at Intuit QuickBooks said:
“The issue of late payments is already well-recognised in the SME community as one of the biggest threats to cash flow and subsequently business success. However, as with many of the common hurdles facing SMEs, COVID-19 has intensified this problem: at a time when SMEs depend on getting paid on time more than ever, businesses both big and small are being forced to delay payments due to financial challenges.
While it is impossible to guarantee clients will pay on time, digital software can relieve the stress and administrative burden of managing late payments. Invoices are flagged and reminders automatically sent as soon as they become overdue – without business leaders having to lift a finger. Crucially, taking advantage of technology frees up valuable time that can instead be spent on what is really important for SMEs: recovering and rebuilding for a successful future.”
QuickBooks is dedicated to helping SMEs through the challenges created by COVID-19 through its small business support web page which features practical tips and resources, including its interactive virtual Ask the Expert series. The series has featured business leaders from accounting firms, tech start-ups and other small businesses, as well as government representatives including the Minister for Small Business Paul Scully MP and Shadow Chancellor Anneliese Dodds MP. Through its Ask the Expert series in the UK alone, QuickBooks has created over 580 pieces of content containing valuable advice and support, viewed by more than 60,000 small businesses.
Sources
1 Based on a survey of 1,003 UK SME business owners and key decision makers, carried out in June 2020. In this research, SMEs include sole proprietors and businesses with 1 – 249 employees.
2 Current average based on data for May 2020. 2019 average based on data for Jan 2019 – Nov 2019.
3 QuickBooks research issued November 2019. Based on independent research conducted by Opinium on behalf of Intuit QuickBooks with 506 UK SMB decision makers during October 2019 and data from Business Population Estimates for the UK and Regions 2018: Detailed Tables.
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