The UK’s small business community is under serious threat and must act quickly according to industry experts.
It is reported that 440,000 small businesses in the UK are currently threatened by a tsunami of late payments.
The Federation of Small Businesses (FSB) has made calls for the government to immediately support small businesses and improve payment times. This claim has been picked up by the leading corporate debt collection agency Federal management.
The recent FSB survey found that 30% of small businesses have seen a sharp increase in late bill payments over the past few months. A shocking 8% of these SMEs indicated that the problem is becoming so serious that it threatens their very existence.
Late payment by small businesses is nothing new in the UK. But what’s new has the ripple effect on the economy that the pandemic has caused over the past 20 months.
Unpaid invoices have always been a hidden problem for small businesses, but the effects can be huge. Small businesses are often forced to pay their suppliers long before they get paid. There have been many reported cases of small business owners going without even getting paid themselves, such is the deteriorating situation.
Quite often, while late payments are a serious enough problem. There is also the problem of small businesses not being paid at all. There have been cases where large companies did not pay small suppliers in the hope that they would not have to in case the supplier went into liquidation or went out of business. This cutthroat corporate culture has fueled the collapse of many UK SMEs over the past decade.
FSB National Chairman Mike Cherry said: “Late payments were destroying small businesses even before the pandemic hit. The pandemic has made things worse”
“In the past, the government has rightly identified greater board accountability as key to driving change in this area, but implementation has been slow”
“Take positive action”
Chris Spencer of debt collection firm Federal Management said, “Small businesses need to understand that they need to be proactive when faced with unpaid invoices. Every day we talk to small business owners who procrastinate over non-paying customers”
“To get a positive outcome, you have to take positive action. We specialize in professional debt collection for small businesses. It’s absolutely obvious that if a small business is in financial trouble due to non-payment, it needs to take action immediately. No small business has ever lost a customer just because they demanded to be paid”
FSB National Chairman Mike Cherry also said SMBs and small businesses face heightened battles from all angles. The UK small business sector employs over 13 million people. Rising energy costs, new import controls and rising chargebacks are just some of the daily battles SMEs face in the UK.
Government action in case of late payment
Previously, the government had tried to implement the prompt payment code as an antidote to late payments and the FSB had previously asked large companies to comply. The FSB says 30-day payment terms should be standard for large companies and best practice.
Only the results of the FSB investigation will give the government cause for concern. Thousands of small businesses expect the first quarter of 2022 to see their financial situation deteriorate as the economy continues to blow hot and cold at the turn of the new year.
Pessimism is common among small business owners, especially in public service sectors such as hospitality, retail and food supply. Due to the fear created by the covid variant Imicron, many members of the public are living in self-imposed confinement.
Skyrocketing energy costs have already hit some small businesses hard, forcing them to close during the winter months. The recent price cap introduced by regulator Ofgem did not include trading companies and businesses.
A government spokesperson spoke on the subject. “The government is making significant reforms to help small businesses get paid on time, including halving the time limit for payments in the prompt payment code and reviewing fines and other new powers for the Small Business Commissioner”
‘There are plenty of supports available to ensure small businesses are well placed to comply with UK border processes, including personalized advice through the Export Helpdesk’
Many have called for additional support for small businesses during these worrying times and urged SMEs to take appropriate and effective debt collection action where possible.