The Late Payment Directive was introduced four years ago to help protect European businesses, particularly SMEs, from late payment. The EU recognised that every year, thousands of SMEs go bankrupt waiting for their invoices to be paid, and so the goal of the legislation was to significantly improve employment, growth and the liquidity of businesses.

Four years on from its implementation, few companies familiar with it claim to have seen a positive effect, and recent research appears to show the problem is only getting worse.

Over half of SMEs on longer payment terms this year

An annual bellwether survey of 10,468 SMEs from 29 EU countries was conducted by Intrum Justitia between 1st of Feburary and 29th of March this year. It found that 55% of UK SMEs have been asked to accept longer payment terms than they feel comfortable with, and what’s particularly surprising is that this is up from 37% in 2016 – a significant increase and concerning development.

Intrum Justitia’s CEO Mikael Ericson notes that this is an alarming culture going in the wrong direction. “The economic environment is being severely affected by some businesses pushing contractual terms for sub-suppliers towards 90 days or longer and deliberately paying later than agreed” said Ericson.

Why is this happening?

64% of UK respondents said that inefficient administration at their customers was a key reason for late payment. The impact of this is twofold – the first being the obvious frustration of trying to get paid and the second is the amount of time spent chasing these payments.

If SMEs can save an employee one day a month by not staying on hold, sending numerous emails, or being bounced around different contacts, that equates to almost 2.5 weeks per year. This time could be better spent on value-adding activities such as streamlining processes, supporting other staff or looking at other ways to improve the margins of the business.

56% of UK respondents also said that their customers intentionally delayed payments past their due date. This is in line with findings from The European Commission’s own impact assessment on the Directive which concluded that business culture, economic conditions and power imbalances are the driving factors for payment behaviour.

Whilst the rise of alternative finance providers such as MarketInvoice has made significant headway in improving options and access to credit for SMEs, more needs to be done to tackle business culture and power balances.

Late payments impact revenue and prohibit business growth

Over half the businesses surveyed said that late payment contributed to a loss in income and prohibited growth. If we take a £1m turnover company, their average daily revenue per day works out at £2.7k. If they’re paid 10 days late on average, that’s £27k tied up in late payments at any one time which could otherwise be redeployed within the business – accepting new orders, launching new projects, hiring of staff, purchasing new equipment – all activities that can contribute to business growth.

This growing problem of longer payment terms also leads to a vicious cycle where businesses that receive late payments are in turn forced to pay late themselves; in the report, 7 out of 10 European businesses admitted to not paying their own bills on time.

Invoice finance offers SMEs an effective solution

With a swift analysis of company financials and debtor books, we can quickly put a number on the amount of money a business can have available to help their cash flow by using our services. And our data shows that the average rate of growth of businesses using our services last year was a healthy 35%.

Cash is king in any business, especially with SMEs, and helping take control of this cash is why MarketInvoice has become the leading invoice discounting platform in the UK. Our cash flow solutions are designed to make it quick and easy to get the funding you need to meet your ambitions and combat the payment trend which is currently only going one way…late.