Around 50,000 Businesses Close Due to Late Payments Every Year

Around 50,000 Businesses Close Due to Late Payments Every Year

Some businesses wait several months before paying their suppliers, severely impacting the bottom line of many small businesses.

Small businesses account for two-thirds of UK private sector employment and more than half of business turnover. Late payments damage their income, which can hold back investment or job creation and, in the worst cases, lead to job losses and business closures.

Over £23.4 billion is owed in outstanding invoices to UK businesses. According to 2016 research from the Federation of Small Businesses (FSB), around 50,000 businesses close every year due to late payments.

“We need a real culture change around business payments in the UK to take pressure off our phenomenal entrepreneurs,” the first female Small Business Commissioner, Liz Barclay, said. “People who have already delivered goods and services have to be able to turn their attention to their next client and next order rather than chasing up late payments and worrying about their cashflow.”

“I know from personal experience how damaging that can be to mental and emotional health,” she added.

“Having run small businesses for most of my professional life I know just how toxic delayed invoices can be, causing needless uncertainty as business owners chase payments which should have been made weeks or even months ago,” Small Business Minister Paul Scully said.

Last year, the government consulted on new powers for the Commissioner, including the power to order payments, levy fines and open investigations based on third-party information. The responses to the consultation and further proposals will be published in due course.

In January this year, the government also announced reforms to the Prompt Payment Code, a voluntary scheme whereby businesses commit to paying their partners in good time, driving further culture change and encouraging businesses to address their practices.

The government is committed to backing the UK’s small businesses and has provided unprecedented support throughout the pandemic. Further support announced in the Budget last month includes:

  • £5 billion for new Restart Grants – a one off cash grant of up to £18,000 for hospitality, accommodation, leisure, personal care and gym businesses in England
  • a new UK-wide Recovery Loan Scheme to make available loans between £25,001 and £10 million, and asset and invoice finance between £1,000 and £10 million, to help businesses of all sizes through the next stage of recovery
  • a new Help to Grow scheme to offer up to 130,000 companies across the UK a digital and management boost

Image: goodluz / Adobe Stock

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Ruth Kerr is a guest writer who writes articles on personal finance, financial planning, accounting and taxation.