Late Payments Crisis Threatens UK Small Businesses: GoCardless and FSB Report

A recent report by GoCardless, in partnership with the Federation of Small Businesses (FSB), has brought to light a growing crisis of late payments that is impacting small businesses across the UK . The report highlights the challenges faced by small business owners due to delayed payments and the potential consequences for the broader economy.

The Domino Effect of Late Payments

The report emphasises the far-reaching consequences of late payments, creating a ripple effect throughout the economy . According to the findings:

Supplier Payments: 36% of small businesses struggle to pay their suppliers on time due to delayed incoming funds .
Employee Payments: 18% have faced difficulties paying employees because of late payments .
Financial Strain: Over 28% of SMBs have turned to short-term financing options like loans and credit lines to manage cash flow issues caused by late payments . This issue is particularly acute in the food and beverage sector (40%) and retail (32%).

Impact on Business Confidence and Growth

Beyond immediate financial difficulties, late payments are also negatively affecting business confidence and growth . A significant 61% of small businesses report that late payments prevent them from reaching their full potential, with even higher percentages in the food and beverage (67%) and manufacturing (64%) industries . Many small businesses appear resigned to the issue, with 50% accepting late payments as an inevitable cost of doing business, and nearly a third (32%) feeling they have little control over managing them .

The study also reveals a power imbalance, as 50% of businesses feel they have little to no control over late payments from large corporations, compared to 30% from small business customers and 26% from individual consumers .

Seeking Solutions

While the government has pledged to address late payments, small businesses are already seeking their own solutions . These include:
Implementing Fees: 53% of small businesses are considering implementing fees to discourage delayed payments .
Changing Payment Methods: 33% are looking to change payment methods to achieve more reliable transaction processes .
Automating Payments: 27% aim to automate payments to reduce reliance on manual invoicing and follow-ups .

Expert Commentary

Caroline Lavelle, Chief Commercial Officer at FSB, notes that late payments exacerbate the pressure from economic uncertainty, high taxes, and labor costs, leading to low business confidence . Jolawn Victor, Chief Growth Officer at GoCardless, suggests that automating collections with pull-based payment methods like Direct Debit can help businesses get paid faster and reduce the burden of chasing payments .

Conclusion

The report paints a concerning picture of the challenges faced by UK small businesses due to late payments . As the UK grapples with this issue, small businesses must explore financial tools to mitigate risks, while policymakers work on long-term solutions .