UK SMEs stretched further by late payments
- Double trouble: Late payments double from 12 days in 2018 to 23 days in 2019.
- Late: 39% of invoices paid late in 2019, marginal improvement from 43% in 2018.
- Value: Average of £34,286 owed in late invoices, businesses waiting on £34b in late payments.
- Big business: Larger businesses take longer to settle bills.
- Exporters: German debtors taking twice as long to pay invoices in 2019. While French, Italian and Spanish businesses improved on late payment to UK companies.
9th December 2019, London: The latest MarketFinance Business Insights1 charts late payment trends between 2013 and 2019, analysing over 100,000 invoices. The data sheds light on how long SMEs are waiting to be paid, how late these payments were and the impact.
The analysis suggests that businesses typically agree 45-day payment terms from completion of work or delivery of goods. Despite this, almost two-fifths (39%) of invoices issued in 2019 (worth over £34b2) were paid late, an improvement on 2018 when 43% of invoices were paid late. However, the number of days an invoice was paid late in 2019 has doubled to 23 days from 12 days in 2018. Invoices paid late were typically larger in value (£34,286) than those paid on time (£24,624).
There is a distinct difference between these terms. Long payment terms refer to the time contractually agreed between parties when invoices will be settled for goods and services provided. Whilst sometimes lengthy, they are a reality of doing business. Businesses can plan to cover these cash flow gaps and manage their working capital using either cash reserves or finance tools like invoice finance.
Late payment refers to the additional time taken to settle invoices, outside of those contractually agreed at the point of purchase. This is an unknown and unexpected element which can significantly impact cash flow, business plans and even in some cases paying staff or creditors.
- The number of invoices with long payments terms (anywhere between 60 and 120 days) being paid late almost doubled between 2013 and 2019. Rising from 13% being paid late in 2013 to 23% in 2019.
- Over the 6-year period, analysis found that larger debtors3 insisted on longer payment terms (49 days) than smaller debtors (37 days). In addition, when invoices were paid late, these larger debtors also settled much later (94 days) compared to smaller debtors (42 days).
Bilal Mahmood, External Relations Director at MarketFinance, commented: “It’s great to see that fewer invoices were paid late in 2019 but worryingly, those that were paid late took twice as long as in 2018, up from 12 days to 23 days. Late payment practices harm business cash flow, hampers investment and, in extreme cases, can risk business solvency.
Separate research we’ve conducted highlighted that 87% of businesses are prevented from taking on more orders because of the cash flow constraint owing to late payments. Overall it seems who you are doing business with and where they are based is important to know for a small business if they need to forecast cash flow”.
“Government measures such as the Prompt Payment Code and Duty To Report have helped create awareness but need more bite. Until this happens, there are ways for SMEs to fight back against the negative impact of late payments, from having frank discussions with debtors that continuously fail to adhere to agreed payment terms, to imposing sanctions on those debtors, or seeking out invoice finance facilities to bridge the gap.”
Professional and legal services businesses suffered the most with late payment in 2019. Seven in ten (70%) of invoices were paid late, up from 30% in 2018. Manufacturers (57%), retailers (49%) and creative industries businesses were also heavily impacted by late payment of invoices. Interestingly, late payment practices improved for companies working in the utilities and energy sector with only a third (34%) of invoices being paid late in 2019 compared to two-thirds (66%) in 2018.
The number of invoices paid late to companies by region was fairly evenly split. Notably, businesses based in the South East (56%) and Northern Ireland (55%) had the highest number of invoices paid late in 2019 and late payment practices worsened from the previous year.
The biggest improvements 2018 vs 2019 in late payment practices were in North West (63% vs 37%), North East (60% vs 40%), Scotland (62% vs 38%) and the South West (61% vs 39%). Additionally, businesses in the North East (25 days vs 11 days) and South West (33 days vs 10 days) had more than halved the number of days an invoice was paid late.
The analysis looked at invoices sent to 47 countries by UK businesses. US companies were the worst late payers, taking an extra 51 days to settle invoices from agreed terms in 2019. German firms took a further 32 days and businesses in China took an additional 10 days. Interestingly, French, Spanish and Italian businesses halved the number of days they paid late from 24 days late in 2018 to 12 days in 2019.
Bilal Mahmood added: “SMEs owners have come to expect long payment terms but late payments are inexcusable. For every day an invoice is late, it’s more time spent chasing payment. This means less time for business owners to focus on growing their business, coming up with innovative ideas and hiring more people, or just paying their staff and bills. Things need to change quickly.”
“We want the UK to be the best place in the world to start and grow a business, but the UK’s small-to-medium-sized businesses are hampered by overdue payments. Such unfair payment practices impact a business’ ability to invest in growth and have no place in an economy that works for everyone.”
1 Analysis conducted in December 2019 reviewed 100,205 invoices raised by UK SMEs between 2013 and 2019 to a range of businesses across the UK and to 93 countries.
2 Figure based on 990,0000 limited companies (registered with Companies House, who are employers) multiplied by average invoice (paid late) value.
3 Larger debtors are defined as businesses who turnover more that £10.2m as per NAO terms.