Late payments hit small businesses hardest

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Research from the accounting software company Xero in March this year has found that late payments to small businesses has more than doubled over the last two years and is hitting smaller businesses hardest.


Small businesses are on average waiting for more than 29 days to be paid by their customers and 6.1 days over agreed payment terms. The Xero research suggests late payments, what it calls ‘unapproved debt’, is costing UK businesses £1.6 billion in interest payments and time in chasing customers for payment.

Jeremy Hunt, the Chancellor of the Exchequer, has promised a crackdown on what he calls ‘Britain’s late payment culture’ saying it will require all companies bidding for public sector contracts worth over £5 million to be able to demonstrate timely payment practices to their suppliers.

The Government’s promises to address late payments to businesses has been criticised for not going far enough. The Federation of Small Businesses has called on the Government to do more to stop big businesses using smaller ones to ‘prop up their cashflow’.

The impact of paying suppliers late has a disproportionate effect on small businesses. A separate survey by the financial comparison website Nerdwallet found that over half of the businesses it surveyed had outstanding invoices and a third of businesses are spending up to 20 hours a week chasing late invoices.

So serious is the problem Xero is calling on the Government to force companies to include in their annual report how much ‘unapproved debt’ businesses are carrying and explain why they choose not to pay suppliers within 30 days. It is also calling on credit ratings agencies to factor unapproved debt into their credit scores.

Change will, however, take time leaving small businesses vulnerable. So what can business owners do to better protect themselves from late payers? Here are a few tips to follow.

Make your payment terms crystal clear.

Explain to customers your payment terms, ways to pay and penalties for late payment. Consider project or milestone payment schedules for larger projects.

Automate invoicing and reminders.

Accounting software such as Xero and Quickbooks offer automated invoicing functionality and the ability to send reminders. Do not be afraid to use them.

Understand your customers’ finance functions.

Build a relationship with the accounts payable teams with key customers. Know when and who to chase.

Good management reporting and credit control.

Make sure you receive regular and up-to-date management reports that include a schedule of debtors. You cannot chase for payment if you do not know it is overdue.

Chase for payment.

Do not be afraid to chase for payment and chase regularly until payment is received.

When all avenues fail it may be time to consider more formal debt recovery proceedings.

Please contact out expert below for more information.

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James Johnson - Principal at Hillier Hopkins

James is a Chartered Accountant with more than twenty five years experience in accountancy and taxation. His particular expertise is working with entrepreneurial and family businesses.

Contact James at or on +44 (0)1908 713873

Milton Keynes