Is time finally up for late payers?

The scourge of late payments has continued to worsen over the past few years with larger numbers of UK businesses now owed more money for longer periods of time. Those businesses are also finding it increasingly expensive to get their outstanding invoices settled. However, hope may have finally arrived with a potential new law going through Parliament following a long campaign by the Association of Accounting Technicians (AAT), as well as MPs from across the political spectrum.

Staggering debts

Last year saw the debts owed to the UK's small and medium-sized enterprises (SMEs) spiral up to a staggering £23.4 billion. This represents an increase of up £10.4 billion on the £13 billion owed in 2018, according to figures released by Pay.UK. Meanwhile, the number of businesses experiencing overdue payments has hit 54% among SMEs; this represents the highest level since 2015, when the figure stood at 55%.

The average late payment debt burden has also increased to £25,000 per business, up from just over £17,000 in 2018, with SMEs reporting that, on average, a debt burden of £35,000 could jeopardise their business.

On top of that, the research shows that UK SMEs are now facing a total bill of £4.4 billion a year just to collect money they are owed, with around a quarter of those waiting on funds spending more than £500 a month chasing payments.

Double delay

Separate research carried out by online business finance platform MarketFinance found that UK SMEs are waiting longer than ever before to get paid. The time it took for late payments to be settled more than doubled from 12 days in 2018 to 23 days in 2019, according to the research, which analysed late payment trends between 2013 and 2019 by examining over 100,000 invoices.

The push for prompt payment

According to the AAT, almost a quarter of insolvencies are caused by late payment issues. Even for those businesses that manage to absorb late payments, the loss of income can stop small businesses from investing and growing. Late payments can also damage productivity, and generally such payments have a very negative impact – including on many business owners' mental health.

The AAT is campaigning to tackle this problem by making three major changes. These are:

  • that the Prompt Payment Code should be made compulsory for businesses with more than 250 staff
  • that payment terms should be halved from a maximum of 60 days to a maximum of 30 days
  • that a clear, simple financial penalty regime for persistent late payers should be introduced and enforced by the Small Business Commissioner.

The AAT says there is no reason why any business should be paying its suppliers in more than 30 days, and the Small Business Commissioner must have powers to impose fines on persistent late payers.

Time limits and sanctions

There is now hope of real action after Labour Peer Lord Mendelsohn introduced a Private Members' Bill that promises to introduce a statutory 30-day limit for payment of all invoices to Parliament. This time limit will be backed up by giving the Small Business Commissioner the necessary power to deal with serial offenders.

The Bill will also ban the most predatory payment practices like prompt payment discounts, where purchasers demand discounts for prompt payment of invoices, charges for onboarding and staying on supplier lists.

Lord Mendelsohn said: 'Late payment is crippling small businesses while the UK economy is crying out for investment. By failing to tackle late payment, we are starving our small businesses of the capacity to act.

'The recent huge escalation in outstanding payments shows that decades of promoting 'culture change' has only made things worse. This Bill will tackle the issue once and for all with a package of measures that is operable, impactful and measurable.'

Our team can help businesses with a range of financial planning issues. If late payments are a problem for your firm, please contact us.

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