May 09, 2017

How are late payments affecting business and the economy?

Late payments made headlines this month when Jeremy Corbyn, the leader of the UK’s Labour Party, “declared war” on late payments, with the aim of helping “small-time entrepreneurs, self-employed tradespeople, and local firms”.

Latest research from insurance company, Zurich, in their SME Risk Index report estimates that £44.6 billion in late payments is owed to small-and-medium sized companies. It further predicts that overall lending to SMEs could soar above £50 billion this year, with one in fifty “planning to borrow more than £1 million”.

Zurich’s survey of over 1000 SMEs was further broken down by Finextra, indicating that it shows that more than one in five (21%) owners and decision-makers are owed more than £25,000 and almost one in ten (9%) are owed more than £100,000.

 

money late payments

 

Sage Pay comment that “late payments are more than just an inconvenience for small businesses” and can lead to businesses terminating. The evidence is in Zurich’s survey that shows 67% of answers claiming overdue payments forced the closure of a business, and 41% had cash flow problems.

Sage Pay further comment that this has a knock-on effect on the economy:

“…failing businesses means lower confidence, people losing their jobs and a lower GDP…”

Paradoxically, these results come at a time when new payments innovations dedicated to streamlining cash flow are increasing in popularity. The Payments Council announced that cashless payments are more popular than notes and coins, while The UK Cards Association states that 88 million contactless cards are being used as of April 2017 – this is a rise of 34.5% from April 2015.

Unsurprisingly, a Sage Pay survey found that 36% consumers would stop using a company if they knew it was deliberately withholding payments, while almost three-quarters claim they would use a business that pays suppliers on time if they knew this information beforehand. Interestingly, 45% of businesses say technology, like management dashboards (or APIs), would help them take control of their incoming and outgoing payments.

It is widely viewed that businesses of all sizes should take responsibility for their outgoing payments. Sage Pay quoted that Waitrose is reducing its payments terms to seven days, while Tesco reduced it to 14 days last year. Businesses should also be aware of the changes set to take effect from January 2018 with the new Payments Services Directive (PSD2) as it will increase competition and, thus, choice for consumers and SMBs.

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