The detrimental impact of late payments on small businesses has reached alarming levels, with the total cost soaring to £1.6 billion by the end of 2023, according to findings by the accountancy firm Xero.
This staggering sum underscores the financial strain faced by small enterprises, exacerbated by the compounding effect of delayed payments.
Alex von Schirmeister, Xero UK’s managing director, emphasized the urgent need to address this pervasive issue, characterizing late payments as “unapproved debt” that significantly hampers the operations of small firms. He called for accountability measures to ensure timely payments from larger businesses to their smaller suppliers, highlighting the critical importance of ending this detrimental practice.
Xero’s analysis, drawn from the accounts of numerous small businesses utilizing its software, reveals that small firms experienced delays averaging 6.1 days beyond their agreed payment terms in the final quarter of 2023. This delay not only disrupts cash flow but also incurs additional costs, particularly as interest rates have risen during this period.
In response to mounting concerns over late payments, Chancellor Jeremy Hunt pledged to address Britain’s late payment culture in his autumn statement. The government’s proposed measures include requiring companies bidding for public contracts exceeding £5 million to demonstrate timely payment practices to their suppliers. Additionally, the extension of payment term regulations to all suppliers engaged by companies bidding for large public contracts aims to expedite payments within supply chains.
Despite efforts to mitigate the impact of late payments, Xero’s data indicates a concerning decline in sales at small businesses, with retail sales particularly affected. Against a backdrop of inflationary pressures, small businesses experienced a 1% year-on-year decline in sales in December, highlighting the challenges faced by these enterprises.
On the employment front, wages paid by small businesses recorded a 3.2% increase in the final quarter of the year, with notable growth observed in the hospitality sector. This trend is expected to persist, especially with the impending rise in the minimum wage scheduled for April.
However, the government’s decision to implement a significant 9.8% increase in the national living wage has drawn criticism from industry leaders in the retail and hospitality sectors. Concerns have been raised about the additional financial burden imposed on businesses already grappling with various challenges, further underscoring the complex landscape facing small businesses in the UK.
Read more:
Small businesses count the soaring cost of late payments