Late payments costing small businesses £684m per year

Late payments are costing small UK businesses £684m each year due to being paid 5.8 days late on average, according to Xero.

Using analysis from thousands of businesses based on revenue and expenses data, the report found that almost half (49%) of invoices issued by small businesses were paid late, with 12% paid more than a month after they were due.

Small business expenses also rose by 18% in 2021 due to supply chain disruptions, price shocks to commodities like oil, and general inflation – a marked difference to 2020, when expenses actually declined by 1%.

Additionally, many businesses are seeing seasonal slowdowns, which is amplified in sectors such as hospitality where small businesses generate 28% of annual revenues in summer, compared to 22% of annual revenues in winter.

Alex von Schirmeister, Xero’s UK managing director, said: “Small businesses continue to show huge resilience in the face of soaring costs but our data consistently points to the damage caused by late payments. While it’s positive to see a new energy support package, the new Government must take the right action on this devastating issue.

“This isn’t ‘late payment’, it’s ‘unapproved debt’. It’s time to call it that and tackle it head on. This includes enforcing stricter penalties for the worst offenders, to provide a lifeline to an overlooked majority. Businesses should also look at the digital tools available which can also help with faster payment.”

Rachael Powell, chief customer officer at Xero, added: “Late payments threaten owners’ ability to meet their own obligations – such as rent or wages.

“Small firms and policymakers can send a clear message that late payments aren’t acceptable, and come together to develop policies and penalties for those who refuse to take the hint. If small businesses and their advisors can actively look out for these red flags in their financial data, they’ll find it easier to anticipate and avoid cash flow crunches.”