Business as usual? Late payments and financial difficulty

Grace Brownfield, Senior Influencing Manager, Money Advice Trust – the charity that runs Business Debtline

Most, if not all of us, would agree that a small business should be paid promptly for any work they carry out. However, for many small businesses that simply isn’t happening.

At Business Debtline, we provide free debt advice across both personal and business finances to tens of thousands of small business owners every year. Unfortunately, our advisers are frequently hearing from people who are facing late payments from their customers. For the people we help, this isn’t just a source of frustration. It can cause or exacerbate financial difficulties and threaten the viability of their business. Indeed, in a survey of Business Debtline callers in December 2022, one in five (17%) said late payments were the biggest risk/challenge facing their business.

Recent research by the Federation of Small Businesses (FSB) found that, on average in 2022, 52% of small businesses experienced late payments in the previous three months. At the Money Advice Trust, we conducted detailed research on late payments in 2020, which found that 45% of Business Debtline callers have experienced late payments. Speaking to Business Debtline advisers, their view is that the problem seems to have got worse, rather than better, since then.

Impact of late payments

Late payments can cause and worsen the financial problems people are facing. Not being paid on time often means small business owners are not able to pay their ongoing liabilities, meaning they may fall behind on bills or credit commitments. Not only does this come with immediate consequences, but can also impact on their credit file, making it more difficult to get credit going forward, which can destabilise their business finances.

For small business owners, their business income is also inextricably linked to their own income. If a small business isn’t paid on time, it can be the difference between someone being able to pay themselves or not. The knock-on impact on their personal finances can be severe.

This was highlighted clearly in e-search we conducted with small business owners across the UK during the Covid pandemic:

• 6 in 10 (59%) self-employed people reported that late payments have a negative impact on their ability to pay household bills.
• A similar proportion (61%) reported that late payments have a negative impact on their ability to pay their business costs.

Difficulties challenging late payments

Dealing with late payments can be a time consuming, and daunting task. Our 2020 research found that two in five (41%) Business Debtline clients who had experienced late payments spent more than 10% of their working time chasing them. For the small businesses and self-employed people that we help, usually with up to one or two employees, even 10% of their working time spent chasing late payments can have a significant impact on their business’ productivity.

Many people we speak to are also unsure of how to challenge late payments, or the support available. In some instances, our Business Debtline advisers may need to spend as much time advising callers on how to chase these debts owed to them, as they do advising on the person’s own business and personal debts. Our dedicated advice website provides information about how to deal with late payments, including accessing support from the Small Business Commissioner, and sample letters to use to chase payments.

However, even if someone knows how to chase a payment, they may be worried about doing so. We often hear from people who are fearful about losing future business from the customer: In our 2020 research, four in ten said they were worried this would happen if they chased late payments.

Helping small businesses

It’s clear that tackling late payment culture must remain an ongoing priority. The Government’s Payment and Cash Flow Review is a welcome opportunity to share your views and help make some progress on this issue.  If you’re a small business owner worried about your finances, whether that’s related to late payments or not, Business Debtline is here to help.

Visit Business Debtline for advice and information on a range of topics and details on how to contact us for support.