The Covid-19 pandemic may cause a trade credit crunch as the backlog of unpaid invoices builds up, Iwoca has warned.
The alternative small business lender said that customers are seeking longer payment terms and suppliers are looking to cut them.
Its research found that one in four businesses doubt they will survive into 2021.
Iwoca said that the proportion of small- and medium-sized enterprise (SME) owners that owe large payments to their suppliers has nearly doubled.
6.3 per cent of Iwoca small business customers reported owing between £20,000 to £50,000 to their suppliers, almost double the proportion from last year (3.7 per cent). And a further fifth of small businesses currently owe their suppliers between £1,000 to £4,999, a rise from 13.8 per cent at the same point in 2019.
At the same time businesses are asking for longer payment terms from suppliers. In the past 30 days, two fifths of firms (41 per cent) asked their suppliers to extend payment terms to give them more time to complete a payment, up from 27 per cent requesting this in the year leading up to the Covid-19 outbreak.
However as suppliers haven’t been paid and are being owed almost twice the amount already, one third of small business suppliers (34 per cent) said they are more likely to either ask for immediate payment or shorten their payment terms in future.
This could result in a trade credit crunch, as suppliers demand earlier payments from small businesses which increasingly require longer payment terms.
“What’s emerging is a concerning game of ‘tug of war’ between small businesses as they look to survive and plan for the future,” said Christoph Rieche, co-founder and chief executive of Iwoca.
“Buyers can’t pay their invoices because they don’t have the revenues and sellers are being asked to provide longer payment terms to ease the strain whilst already sitting on a growing backlog of unpaid invoices.
“Coronavirus can and should help trigger a step-change for small businesses to become more efficient, productive and resilient.
“We believe the first and most obvious change is to make payment terms fairer between suppliers and customers.”