Small businesses report rise in late payments as cost of living crisis bites

Small businesses report rise in late payments as cost of living crisis bites
Dan Martin
Dan MartinDan Martin Content & Events

Posted: Tue 24th May 2022

Over a quarter of UK businesses have experienced more frequent late payments from customers since the cost of living crisis began, new research reveals.

As energy, raw materials and other costs hit record highs, the study by Barclays found that rising prices have started to impact payments with 26% saying overdue bills have increased.

Among the respondents to the survey, 16% said they're finding it difficult to pay suppliers themselves, rising to 33% among manufacturing firms and 33% for the construction and real estate sectors.

Waiting for invoices to be paid isn't just impacting on finances, it's affecting business owners personally too. Over a quarter said they have felt anxious due to late payments and a fifth admitted to having had sleepless nights.

Future business growth is also threatened with 10% saying that the amount they are owed in late payments could be used to recruit more staff and 12% could expand their products or services.

Liz Barclay is the small business commissioner, the role set up by the government to help small businesses tackle late payment. She said:

"It is utterly distressing to see that late payments for some are becoming more frequent. However, given the cost of living crisis, increases in material costs and staff wages, it isn't surprising as many firms are delaying payments until they themselves are paid.

"The biggest companies with the deepest pockets must realise that if they delay payments or offer unfair extended payment terms the whole of their supply chain suffers. The talented people who keep them supplied with goods and services from which they make their money will go to the wall and struggle with mental health issues.

"It's expensive in time and money to find new suppliers. Now more than ever bigger customers must treat smaller suppliers fairly and #PayDontDelay. Call us for help before taking legal action."

How small businesses are tackling late payment

To tackle unpaid bills, 39% of companies said that they had resorted to involving solicitors or taking legal action to reclaim their money.

Businesses are legally entitled to claim late payment interest and compensation if a payment deadline is missed, but although 60% of respondents said they're aware that they can take action, only 16% had done so.

Businesses can also check the payment terms large companies have committed to using the Prompt Payment Code.

The voluntary code requires signatories to pay 95% of invoices to small suppliers with under 50 staff within 30 days and 95% of all invoices within 60 days.

Hannah Bernard, head of business banking at Barclays, said:

"The past two years have been some of the most challenging in living memory for businesses. Along with consumers, SMEs now face the bite of the cost of living crisis.

"We need to put an end to late payments to unlock the full potential of the nation's hard working businesses. Many could use the money owed in late payments to reinvest and grow, generating a boost for the wider economy."

Helping businesses deal with rising costs

The government has faced repeated calls from business groups to introduce measures to help firms deal with rising costs. Some have demanded an emergency Budget.

A report earlier this year by Enterprise Nation and the Entrepreneurs Network called on chancellor Rishi Sunak to act.

Speaking at a Confederation of British Industry event, Sunak admitted that the "next few months will be tough" and ministers "stand ready to do more". He did not announce any specific measures although he repeated his pledge to cut business taxes in the autumn.

"Further government action can only take us so far", Sunak said. "We need you. The wealth creators. The entrepreneurs. The leaders.

"We need you to invest more, train more, and innovate more. And as I've said previously, our firm plan is to reduce and reform your taxes to encourage you to do all those things.

"That is the path to higher productivity, higher living standards, and a more prosperous and secure future."

UPDATE 25/05/22: According to press reports, Rishi Sunak will announce "a multibillion-pound financial package to help with the cost of living" on 26 May.

UPDATE 26/05/22: Rishi Sunak announced a package of support to help households deal with the cost of living. It includes £400 off energy bills for everyone and another £650 for the poorest people. It will be funded with a 25% windfall tax on oil and gas firms' profits. The announcement did not contain any specific measures for businesses.

Advice on dealing with late payment

Dan Martin
Dan MartinDan Martin Content & Events
I'm a freelance content creator and event host who helps small businesses and the organisations that support them. I'm also Enterprise Nation's Local Leader for Bristol. I have 20 years of experience as a small business journalist having interviewed hundreds of entrepreneurs from famous names like Sir Richard Branson and Deborah Meaden to the founders behind brand new start-ups. I've worked for a range of leading small business publications and support groups, most recently as head of content at Enterprise Nation where I was responsible for the prolific output of content on the company's blog and social media. I now freelance for Enterprise Nation as the website's news reporter and as the host of the Small Business sessions podcast. I'm based in Bristol where I run and host regular events with the local small business community in my role as Enterprise Nation's Local Leader for Bristol. I also have strong connections with other major business organisations in the south west region. In total, I've hosted over 100 events including conferences with an audience of hundreds for international brands like Xero and Facebook and live web chats from inside 10 Downing Street. With my partner, I co-run Lifestyle District, a lifestyle blog focused on culture, art, theatre and photography.

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