A new report suggests that the problem of late payments to small companies is “reaching chronic proportions”, with suggestions that only half of invoices are paid on time.
The research, carried out by cloud software firm, FreeAgent, looked at a sample of its database of more than 50,000 small business customers who, between them, sent out hundreds of thousands of invoices during the past 12 months.
The research discovered that on average half of payments were not received on time. Sheffield is the worst affected area when it comes to overdue payments. Just 24 per cent of companies in the city were likely to receive payments within three days of the invoice deadline according to the sample data.
Companies in the Home Counties area and the South East fared little better, with Twickenham companies having a 27 per cent chance and Slough firms a 29 per cent likelihood of being paid within three days of the invoice deadline.
Ed Molyneux, CEO and co-founder of FreeAgent, said: “We know that late payment is a huge issue for the UK economy, but our research shows just how widespread it is for the freelance and micro-business sector. “We found that just half of the invoices sent by micro-businesses across the UK get paid late, while there are certain hotspots where the problem is even more prevalent. And this isn’t just clients taking an extra week or two to pay – it also includes the chronic late payers who sit on invoices for months, as well as those who just don’t pay at all.
“It’s certainly good news that the government recognises the late payment problem and is consulting over the appointment of a small business commissioner to tackle the issue. However, I fear that whoever is appointed will have limited power to actually punish companies who routinely pay late, aside from just naming and shaming them.
“Micro-business owners need to get paid promptly to keep their cash flow healthy and most don’t have the luxury of being able to absorb a late – or non – payment in their accounts. We need to see a complete cultural shift when it comes to paying invoices, so that these types of smaller businesses are not put at risk.”
Andrew Skinner, a partner and Head of Palmers Debt, Recovery and Insolvency team, said: “Late payment disputes are a constant issue which affect businesses large and small and result in cash flow misery which can seriously jeopardise the ability of a business to continue operating.
“If business owners are concerned about late payment issues they should seek prompt legal advice as it is often the case that the failure to pay on time represents a breach of the original terms of contract.
“Mediation and other alternative dispute resolution (ADR) methods can be highly effective in recovering outstanding business debts but formal recovery action can also be taken through the courts as a last resort.”
For advice on business disputes including late payments and debt recovery, please contact us.