Late payments stifling economic recovery as UK SMEs turn down work to manage cashflow

Survey of 500 UK SMEs reveals ongoing Covid-19 impact

  • Majority of UK SMEs have seen payment times lengthen with 14 per cent turning down new business due to the impact of late payments
  • One third of SME owners have not taken a single day off since UK lockdown began

The majority (55%) of UK SMEs are being paid later as a result of the pandemic in a trend which is threatening the economic recovery, according to Bibby Financial Services (BFS).

More than a third (36%) of SMEs have seen payment times increase by more than three weeks, while 28 per cent have seen an increase in bad debt. More than one in 10 (12%) have customers who refuse outright to pay money owed.

As the economy begins to restart, these financial pressures are hindering the ability of SMEs to get back to business. 14 per cent of SMEs have been forced to turn down new business as the money they need to buy raw materials is wrapped up in unpaid invoices, and one in 10 (11%) have had to keep staff on furlough who they need to bring back to complete work.

David Postings, Chief Executive of Bibby Financial Services, said: “It is really sad that SMEs are leaving work on the table when the country needs them firing on all cylinders. Invoice finance is a critical tool in helping SMEs to manage their cash flow and smooth out the degradation in payment practices that they are facing.

“The bounce back loans that many businesses have taken, while providing a short term fix, will need to be repaid. Invoice finance, on the other hand, is a much more flexible option and increases as a company grows. Business owners should be looking to match the funding to their assets to avoid more cash flow pressure down the line.”

While there is a clear economic cost to SMEs, there is also a personal one. SME owners are struggling to balance the financial pressures of the pandemic with their own wellbeing with a third (34%) admitting to not having a single day off since the start of lockdown and 27 per cent citing a deteriorating work life balance.

The research shows that 56 per cent of SMEs will be unable to meet their running costs beyond 12 months as poor payment practices complicate already stretched supply chains. Nearly a quarter (22%) of UK SMEs have lost a supplier already due to the business closing and 12 per cent admit to delaying a payment to a supplier in an attempt to manage cashflow.

David added: “Everyone likes to talk about SMEs being the backbone of the UK economy and they clearly have a critical role to play in the country’s economic recovery, but too often we lose sight of the people that run and work in them. There are 5.9m SMEs in the UK, often employing fewer than 10 people, and for businesses of that size, it’s personal.

“One of the things we pride ourselves on at BFS is the relationships we develop with the businesses we support. The pressures facing SME owners have always been high, but the pandemic and continued poor payment practice in the UK are raising them to unsustainable levels.”

18 August 2020

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