Late payments is one of the biggest challenges facing small businesses and our economy today. 

Over and above the inconvenience, late payments cause a cash-flow squeeze and contribute to some 50,000 small business failures each year, according to research from the Federation of Small Businesses.

More than this, late payments are a drag on the economy as a whole.  Firms are forced to request extensions to overdraft facilities and increase financing costs due to cash flow issues.  This prevents them reaching their full productive potential. Given small businesses make up 99% of all UK businesses, it’s easy to understand the impact on the entire economy. 

While inroads have been made to tackle this issue, it’s clear that we need to go beyond legislation or regulation. We need a cultural shift – both among our biggest companies and our small businesses too.

What’s the delay?

Xero has identified that the UK’s biggest firms pay their suppliers some 50% later than the average 30-day payment terms. 

By using anonymised, aggregated data drawn from hundreds of thousands of small businesses, Xero’s Small Business Insights, shows FTSE 350 companies pay 30-day invoices after 46 days on average.  This is more than three working weeks’ late. 

This data also identified the slowest sectors to pay small businesses in the past year. These include food producers (averaging 60 days), construction and materials (averaging 57 days), and household goods (averaging 53 days).

Even the fastest FTSE 350 sectors to pay were still a few days late on average. Real estate investment trusts averaged 38 days, financial services averaged 35 days and life insurance averaged 33 days.

So, every sector pays 30-day invoices late.  Some by three days, others by more than three weeks. 

When small businesses have employees to pay, this really isn’t good enough.

Changing the culture

However, more than issuing threats, we need a cultural change around late payment. For instance, a good, fair culture is ingrained in companies across Scandinavia, where the average payment duration is nine days quicker in Sweden than it is in the UK.

Part of this cultural change is around the late payment narrative.  While it’s essential we focus on helping the small businesses community, we also need to make the economic argument to support growth.  If more small businesses are paid on time, our economy will be more productive.  This benefits bigger businesses as much as smaller ones.

So, what can we do?

I was appointed to the role of Small Business Commissioner last October and my office is responsible for assessing complaints over payment between SMEs and larger customers.

For small businesses that want help, we provide general advice and information on matters such as resolving disputes. We also signpost small businesses to existing support and dispute resolution services through our website.

We are still in our early days but we will not be afraid to name and shame companies once we have built up evidence against bad payers.

However, many small businesses who approach us are wary of putting their heads above the parapet. This is a huge issue as it prevents us from taking action.

Rather than accept the status quo we need small businesses to come forward and be ready to challenge the behaviour of their larger customers.

Typically, the small businesses that ask for help are more progressive and are more likely to do well.

As someone who has run a family business for 20 years, I understand it’s a difficult and sensitive issue. You don’t want to jeopardise the relationship with the large customer. 

This is why our office is there to mentor, support, and provide advice for owner-managers. 

Now is the time to make Britain the best place for entrepreneurs to flourish and we’re here to help.