Small Business Advice

Small businesses spend £5000 per year chasing late payments

23 May 2018

New research shows that 72% small businesses in the UK are spending an average of three days per month chasing money they are owed. This translates into a cost of £5,000 in man hours as companies try to recover their debts.

Additionally, the survey by Libres found that a quarter of SMEs are chasing ‘aged debt’ of over £20,000.

Overall, survey respondents were found to be owed £11,000. Based on the fact that there are 5.7 million SMEs in the UK, business owners are potentially chasing a total of £14.9 billion in late payments.

The resounding effect of this has led to SMEs not being able to invest money into their own businesses.

As a small business accountant, our team have the in-depth experience and knowledge required to help your company overcome challenges, such as late payments and the subsequent impact they can have on cash flow.

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Downside to aged debt

Over a third of surveyed SMEs say aged debt is affecting their cash flow, with half of all respondents stating that unpaid bills have prevented them from investing in their business.

Some of the key issues respondents mentioned included, “not being able to buy new equipment”, “not being able to pay or hire staff” and having to “put plans to expand their business on hold”.

In fact, one response said, “I worked at a small business for just over a year and my time was often taken up by chasing aged debt. There were months where there were issues paying staff on time and the company was always struggling to invest”.

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How has this happened?

For starters, 40% of businesses explained they don’t have a clear debt recovery process in place. Additionally, 30% of small businesses said they have at some point, or would consider, sourcing additional business finance to cover cash flow issues caused by debtors.

Throw into the mix that 72% of the SMEs spend up to three days a month chasing invoices and it becomes clear that smaller businesses are frequently surviving on slim profit margins, with a limited amount of time to invest in growing their business.

Small businesses want to be able to maximise their buying power for greater profitability, but don’t have the initial investment required. Seeking a business cash advance is certainly a short term solution to plug a cash flow gap, but changing payment terms and being stricter with credit control can ensure that businesses aren’t chasing mounting unpaid bills in the future.

Retailers taking the biggest hit

Those most affected by unpaid debt (21%) were from the retail industry, double that of small businesses in the I.T and tech sectors (8%).

Both of these industries rely heavily on the performance and quality of their technology, and with the majority of respondents saying that the amount of outstanding debt prevents them from investing in equipment, this suggests that debt is more than just a cash flow issue: it stops businesses from seizing opportunities to grow.

61% of SME owners want late payment legislation

A survey from Basware and YouGov interviewed over 2,000 small businesses with less than 250 staff and found that more than half support a change in the law around late payments. Of those surveyed, six-in-10 back the introduction of a 45-day minimum payment term.

Overall, more than six times as many SMEs want new laws as don’t (61% vs 10%).

The UK economy is built on the success of small businesses – together they employ around 16 million people or 60% of the corporate workforce. The combined annual turnover of SMEs in 2017 was £1.9 trillion, over half of all private sector turnover in the UK.

Yet, despite the importance of SMEs to the UK economy the survey found that one in four of the respondents have had their financial viability put at risk due to late payment, or payment towards the end of a term agreement.

That would mean around 665,000 SMEs in the UK have come close to bankruptcy because of payment issues.

Furthermore, some 53% of those who said their financial viability had been put at risk (which would equate to around 350,000 individuals) have been forced to use their own personal finances to keep their businesses running in the interim.

Of those whose business was put at risk due to a late payment or payment towards the end of the payment term, 18% (an estimated 120,000 businesses) said they had been forced to put recruitment on hold.

A further 13% (around 86,500 firms) had been forced to let staff go due to the problem.

Finally, across all respondents, half of those businesses saying they have experienced late payments pointed the finger at big businesses (+250 employees) as the source of the issue.

With a significant number of people employed by small businesses, the UK cannot afford for this thriving economic ecosystem to collapse.

Keir Wright-Whyte


Managing Director

0207 043 4000

About the author

Originally graduating with a degree in geography from Edinburgh University, Keir claims that he was then tricked into becoming an accountant by one of the UK's top 5 accountancy practices.The deception extended to the usual training in audit and associated activities.

Keir subsequently worked in a number of advisory roles with clients including in the energy trading, pharmaceuticals and financial services sectors.

He loves working at Accounts & Legal because of the variety of work and clients, the excellent team ethos and morale, the importance placed on genuinely helping and being useful for clients and because he believes what he does matters to clients and helps the firm.

Keir's primary role is to ensure that new clients with complex businesses or needs are on-boarded in the best way and he is a "trouble shooter" both for clients and where complex issues arise internally. He also helps the accounting teams strive to improve what we do for clients, whether processes or services.

When not debiting or crediting, Keir has a penchant for fixing old buildings, skiing, surfing and cycling.


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