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Past Due: The Impact of Late Invoices On Small Businesses

You sent the invoice along with the finished product and set the deadline for payment to be received: 30 days. A month came, went, and what never arrived? Payment. A week passed, then another, then maybe you received payment, if you felt into that lucky category. The average late pay date for a 30-day invoice sits around 46 days after date, and the effect on small businesses is palpable: More than 50 per cent operated in the red during 2017, but even the half in the black didn’t necessarily find themselves in the clear. Thanks to almost £14 billion (2017 alone) in late payments, nearly 70 per cent of small businesses suspended any plans to increase their investments in the first quarter of 2018. Almost 15 per cent planned to decrease their current investments. It’s not hard to understand how this could happen: A lack of free capital – i.e., the monies these late payments would provide – means SBEs cannot afford to branch out as they might like and will miss certain opportunities. Combined with a rise in minimum wage rates, auto-enrolment contributions, and an inflation rate well above the hoped-for two per cent, free cash is hard to come by for many. The frightening truth is a full third of UK SBEs experience regular financial hardships because of these late payments. Nearly one-fifth let staff go; a full quarter almost shuttered their doors because of payment problems. Current estimates for 2018 put the late payment deficit at £26 billion and a Federation of Small Businesses prediction that 50,000 UK businesses will close thanks in part to this. More than half used personal finances to keep their businesses open and seemed woefully underinformed about incentives to invest that might help with their capital, such as the R&D tax credits offered by the government. In 2017, qualified SBEs could receive 11 per cent of their expenditures; as of 1 January 2018, that figure rose to 12 per cent.

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The Government stepped in another way and forced all large UK companies to disclose payment practices in April 2017 to help discover the cause of and resolve the issues with late payments to SBEs. What they found startled many: Almost 90 per cent of SB suppliers received late payments from their larger clients. Less than 10 per cent received on-time payments from local governments (how embarrassing!) and public infrastructure project managers. Sadly, a third of FSB members believe payments conditions worsened over the last two years, with the average outstanding balance approximately £6,142 a pop. This is despite Government intervening with measures such as the Prompt Payment Code and the FSB’s debt management program. The Prompt Payment Code (PPC) seeks to help enrolled businesses stay honorable with pledges to pay outstanding invoices within 60 days of issuance, though they strive for a 30-day deadline. Violations of these pledges are subject to investigation by the PPC board and potential disciplinary actions. Such penalties still seem not severe enough to prevent late payments by some of those undersigned. One source of frustration with the PPC is the payment window, which exceeds the one wanted by a majority of SBEs: 45 days. The longer these invoices go unpaid affects the SBE’s ability to pay its own suppliers – often enough other SBEs themselves – which then sets off a chain reaction of strained relations, dwindling finances, and open invoices. Another issue with the PPC is its failure to account for “retrospective discounting,” or a payoff tactic used by some delinquent clients. Instead of remission in full, they will offer to pay an amount less than the invoice figure in a timelier manner. This can entice an SBE, some in desperate need of what funds they can get, to accept the deal, even at a loss. To add further insult, even these payments tend to run late! This two-month timeframe adds to wasted funds in another way: SBEs spend approximately three days each month on attempts to recoup these late payments. Between the time spent in pursuit and the wages paid to those involved, this comes to roughly £5,000 spent annually on these searches. A quarter of these businesses seek out £20,000 of aged debt (that due past the invoice date). What’s more is 40 per cent of them fly blind in their pursuits: These companies never established any sort of defined debt recovery process. The FSB launched its own debt management program to help SBEs recover what’s due them at no additional charge, an oddity in the world of debt collection. Interested organisations simply need to register online and upload their debtor information and the amounts due. A solicitor’s letter with then be sent to the client on the SBE’s behalf with a seven-day deadline for payment. Failure to comply will result in further actions, up to and including court mandates. Have you experiences hardships because of unpaid invoices? What steps did you take to rectify your situation?