UK small- and medium-sized enterprises (SMEs) are currently owed £61bn in late payments, a 20 per cent increase compared to this time last year, research has found.
A survey from cashflow management system Penny Freedom has revealed that two thirds of the six million SMEs in the UK have at least one late payment on their books, with an average value of £15,370.
Based on the UK’s average salary of £29,600, that unpaid money could pay for businesses to hire more than two million people.
Business owners and managers now spend an average of two days a month chasing unpaid invoices and associated financial admin, a 25 per cent rise from this time last year.
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More than a quarter (26 per cent) of businesses admitted to currently having ‘three or more’ unpaid invoices on their books.
Businesses across the board are being pressured to increase the length of their standard invoice terms, from an average of 33 days to 56 days – a rise of 69 per cent. One in 10 businesses said they had been asked for 60-day payment terms during the pandemic.
Penny Freedom cited additional research from the Federation of Small Businesses in 2016 which found that 50,000 small businesses are forced to close each year as a result of late payments.
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“When we started Penny Freedom our goal was to help businesses of all shapes and sizes improve their cashflow and financial stability, and eradicate worry about late payments and that hasn’t changed,” said Colin Gunnel, co-founder of Penny Freedom.
“Covid may have changed the way we all do business, but late payments and outrageous payment terms must be a thing of the past. The damage it does to small businesses and sole traders can be immense, and we were shocked to see just how much is owed to SMEs right now.
“It’s no wonder so many SMEs in the UK are struggling to stay afloat, especially in industries more heavily affected by the pandemic. We wanted to humanise these figures for people because ultimately they’re never just numbers on a spreadsheet.
“Prompt payment under agreed terms is imperative to keeping SMEs, the backbone of the UK economy, thriving and keep people in work. With unemployment set to rise again later this year the fact that so much money is owed is criminal.”