While late payments are a constant concern for small and medium businesses (SMBs), their impact continues to grow, according to a new report from bank payment company GoCardless.
A GoCardless survey of over 2,000 small business respondents commissioned through the Federation of Small Businesses (FSB) found that 45 per cent are experiencing more late payments than 12 months ago. Meanwhile, 50 per cent revealed concern over the number of late payments rising over the next 12 months. Already, nearly a quarter (24 per cent) of SMBs say they receive payments that are up to 60 days late.
With small businesses accounting for 60 per cent of UK employment and 48 per cent of business turnover in 2024, late payments add additional pressure to what is already a tough economic environment.
Fifty-two per cent of respondents say they forfeit late payments as much as 10 times a year to avoid the time and cost involved in chasing them. As a result of late payments, 28 per cent indicate they’ve had to use short-term financing, such as loans and credit lines, to manage cash flow due to late payments, rising to 40 per cent for respondents in the food and beverage industry and 32 per cent in retail.
Caroline Lavelle, chief commercial Officer at FSB, said: “Our latest Small Business Index reveals small business confidence hit its lowest recorded point since 2020 in the fourth quarter of last year.
“With small businesses already citing the domestic economy as a barrier to growth alongside the tax burden and labour costs, adding late payments to the mix only increases the strain. This latest research from GoCardless shines a light on the sheer scale of the problem, its drag on individual businesses, and the barrier it creates to economic growth.”
The late payments ‘domino effect’
The GoCardless report also points to a late payments ‘domino effect’, with detrimental impacts on business growth, reputation and mental wellbeing for both employees and business owners. In fact, 36 per cent of SMBs say that late incoming payments affect their ability to pay their own suppliers on time, while 18 per cent say they have impacted their ability to pay employees.
More broadly, 61 per cent of small businesses say late payments are holding back their business from achieving its full potential, with 67 per cent and 64 per cent of respondents in the food and beverage and manufacturing industries, respectively, agreeing with this statement.
Furthermore, 50 per cent of respondents agree that they are an ‘inevitable cost of doing business’. Around 32 per cent feel they have little to no control over how to manage late payments.
This perceived lack of control appears to vary based on the payer. Fifty per cent believe they have little or no control over late payments from big business customers, compared to 30 per cent from small business customers and 26 per cent from consumer payers.
Game-changing tactics
Jolawn Victor, chief growth officer at GoCardless, added: “The findings suggest a sense of resignation from small businesses when it comes to late payments. But with nearly a quarter waiting up to an extra 60 days for money that they’re due, it’s time for a change. Until we tackle late payments, it will be difficult for SMBs to reach their full potential – both as a standalone enterprise and as a collective powerhouse for the UK economy.
“It’s a complex issue with many causes, but customers tell us that one game-changer to taking back control is automating their collections with pull-based payment methods like Direct Debit which, through GoCardless, could get them paid up to 47 per cent faster. This is a highly established and preferred way to pay that also eliminates the need to chase late payments, freeing up time to focus on what really matters.”
In September 2024, the UK government pledged to crack down on late payments, in light of the issue costing SMEs around £22,000 a year on average and leading to 50,000 business closures a year, according to FSB research.
However, despite this, many small businesses are looking at actions they could take themselves. Over half (53 per cent) of respondents say they would charge late fees in the future to alleviate late payment issues. Meanwhile, 33 per cent would consider changing payment methods, and over a quarter (27 per cent) would automate payment processes.
