SMEs may be small and medium in name, but they have a huge impact on the British economy and British employment rates. A staggering 61% of Brits are employed by SMEs[1], showing just how influential these mini-powerhouses are. Despite their massive impact, SMEs face a real problem when it comes to payments – they simply aren’t getting paid on time.
Late payments have some obvious consequences on these businesses, but they also have deeper, wider-reaching effects. Over half of SMEs have reported that in the past six months, late payments have increased, with 31% of them spending an average of 21-30 hours per month[2] chasing their clients. Even worse, when payments were made, over a third[3] of payments taken in a month were late. This has a huge impact on SMEs, as they have to spend time following up on overdue payments; time that could be better spent attracting new business opportunities or adding value to their business via other means.
When SMEs don’t get the money they’re owed, it puts pressure on cashflow. This causes SME owners undue stress as they try to cover a sudden lack of money. As a result, many tap into their own personal finances to plug the gap in money. That’s if they’re lucky enough to have sufficient funds to cover it themselves; The Federation of Small Businesses[4] found that in 2022 alone, 37% of SME owners had to apply for credit to manage cashflow. This puts SMEs under enormous strain, as they typically have other debts and bills to pay off. This just adds to the pressure they already face.
Speaking of borrowing money, owners also have to think about interest rates. Late payments from other businesses and clients means that SME owners may not be able to pay their loans back on time, which means they will incur interest on them, which is often quite hefty. A lack of punctuality from clients in paying SMEs can have costly knock-on effects, through no fault of the SMEs themselves.
The owners aren’t the only ones affected by late payments. A lack of cashflow chips away at the cash reserves an SME has to pay its employees, causing a ripple effect. Unlike large corporates who can continue paying their employees even if payments are late, SMEs don’t necessarily have enough in the bank to cover an unexpected shortcoming. So, not only are owners under duress, but so are their employees. This could even cause wider problems in terms of employee retention; if they can’t rely on a steady paycheque and the end of each month, they may cut their losses and move to a larger business which can guarantee a reliable salary.
Paying SMEs on time is crucial; otherwise, it can have severe side effects which are not only convenient, but could threaten their businesses as a whole. It is therefore important that all payments are made on time. For too long, a culture of ‘paying whenever’ at the expense of SMEs has gone on. The British public also echo this sentiment, with 62% agreeing that businesses should be paid within a week[5]. SMEs don’t just have support amongst themselves – the public are with them. It’s time for a payments revolution!
[1] https://ffnews.com/newsarticle/paytech/two-million-of-britains-small-businesses-fall-victim-to-late-payments/
[2] https://ffnews.com/newsarticle/paytech/two-million-of-britains-small-businesses-fall-victim-to-late-payments/
[3] https://ffnews.com/newsarticle/paytech/two-million-of-britains-small-businesses-fall-victim-to-late-payments/
[4] https://www.smallbusinesscommissioner.gov.uk/news/time-is-money-late-payments-stifle-small-businesses-report-shows/
[5] https://www.smallbusinesscommissioner.gov.uk/news/time-is-money-late-payments-stifle-small-businesses-report-shows/
