As inflation continues to increase, Xero has released new data showing that late payments are costing small businesses £684 million each year.
Using analysis from thousands of businesses based on revenue and expenses data, this is due to them being paid 5.8 days late on average.
Prepared by Accenture, with the support of Xero, the global small business platform, these findings underpin a new report: Crunch: Cash Flow challenges facing small businesses, Part II. The report aims to help small businesses and their advisors better understand ‘cash flow red flags’ – the early warning indicators that a small business is heading for cash flow trouble.
Alex von Schirmeister, Xero’s UK Managing Director, said, “Small businesses continue to show huge resilience in the face of soaring costs but our data consistently points to the damage caused by late payments. While it’s positive to see a new energy support package, the new Government must take the right action on this devastating issue.
“This isn’t ‘late payment’, it’s ‘unapproved debt’. It’s time to call it that and tackle it head on. This includes enforcing stricter penalties for the worst offenders, to provide a lifeline to an overlooked majority. Businesses should also look at the digital tools available which can also help with faster payment.”
In a separate Xero study, 79 percent of large UK businesses said that without their small business suppliers, their organisations would be more expensive to operate. But despite this acknowledgement, over half (55%) owned up to having paid a small business supplier later than the agreed payment terms in the last 12 months.
Tackling cash flow ‘red flags’
The report recommends that small firms consider adopting online invoice payment options for faster payment; and work with their accountant to stay on top of government programmes that offer payment plans which help businesses smooth out their expenses.
“Late payments threaten owners’ ability to meet their own obligations – such as rent or wages,” said Rachael Powell, Chief Customer Officer, Xero.
“Small firms and policy makers can send a clear message that late payments aren’t acceptable, and come together to develop policies and penalties for those who refuse to take the hint. If small businesses and their advisors can actively look out for these red flags in their financial data, they’ll find it easier to anticipate and avoid cash flow crunches,” said Powell.
Leave a Comment