When small businesses thrive, the UK economy thrives. When they don’t, we all suffer.
Business failure is often attributed to a large-scale shock, such as the financial crisis of 2008. But, it’s often long-term things bubbling away under the surface that can have the same, if not greater impact.
I’m talking about late payments. When an invoice isn’t paid on time, it can have devastating effects on a business.
We’ve seen it ourselves amongst our small business community. It’s now the norm for the vast majority not to get paid on time. This is totally unfair.
Xero and Paypal conducted some research into late payments and this is what they found:
Bottom line blues
The research showed that late payments had a direct impact on the bottom line for those small businesses. Plus:
- In an average month, almost half (48%) of invoices are paid late. They are also paid 14 days late on average.
- This situation is only getting worse over time: on an average day in February 2019, businesses were owed £23,360. Compared with February 2018, when businesses were owed £20,004 in late payments – that’s a 17% increase in twelve months. Shocking.
- According to Xero’s Small Business Insights, only half of small businesses were cash flow positive in any given month in 2018. Many (26%) were also struggling to pay their own invoices on time – creating a vicious circle.
The knock on effect of poor cash flow has led to over a third (35%) of business owners citing escalating debt when they’re not paid on time, and to 45% of business owners feeling like they’ve failed their companies.
Impact on wellbeing
As well as the huge impact late payments have on a firm’s bottom line, they can also have hugely detrimental effects on the mental health of entrepreneurs.
- 44% of small business owners say late payments have adversely affected their mental health. And 43% say they’ve had sleepless nights worrying about cash flow.
- 37% have considered giving up their business entirely due to cash flow issues. If even a fraction of them actually did give up, it would cause economic instability.
- Three-quarters of entrepreneurs say that running a business would feel more ‘worth it’ if late payments weren’t a thing. And 26% say they’d enjoy better physical health!
Tackling late payments is about so much more than getting paid when you’re supposed to be paid. It can be a matter of business life and death. Just because this behaviour's common doesn’t mean that it’s acceptable.
To see the full report and for tips on how to tackle late payments take a look here.