Cost of living: one quarter of UK SMEs hit by more late payments

More than a quarter (26%) of UK businesses polled by Barclays have reported that late payments from customers have become more frequent, highlighting how the cost of living crisis is starting to impact SMEs.

The research was conducted by YouGov, polling 500 decision makers in SMEs with a turnover of less than £25m from April to May 2022.

Among these respondents, 16% said that they are finding it more difficult to pay suppliers themselves because of the cost of living crisis, rising to a third in the manufacturing and the construction & real estate sectors. One in 10 (10%) said that the amount they are owed in late payments could be used to recruit more staff, while 12% said they could expand their products or service offering and grow their business - highlighting how late payments negatively impact a business’s income and create cashflow instability. Late payments are the single biggest cause of business failure, according to Barclays.

The toll can be personal for entrepreneurs, too: more than a quarter (26%) of respondents said they have felt anxious or that their wellbeing has suffered as a result of late payments and a fifth (21%) of business owners responded that they have had sleepless nights.

Businesses can claim late payment interest and compensation if a payment deadline is missed, Barclays highlighted. While 60% of those surveyed are aware of that, only 16% have taken action, with 26% simply unaware of the option.

A third of businesses (39%) said that they had involved solicitors or taken legal action to reclaim late payments. But this is less common among smaller businesses, with only 31% of SMEs with turnover less than £2m responding that they had taken legal action, compared to half (51%) of businesses with turnovers above £2m. As a result, 58% of respondents said they would refuse a job with a potential customer if they were known for paying late.

“The biggest companies with the deepest pockets must realise that if they delay payments or offer unfair extended payment terms the whole of their supply chain suffers,” said Small Business Commissioner Liz Barclay. “The talented people who keep them supplied with goods and services from which they make their money will go to the wall and struggle with mental health issues.”

“We need to put an end to late payments to unlock the full potential of the nation’s hard working businesses,” added Hannah Bernard, head of business banking at Barclays. “Many could use the money owed in late payments to reinvest and grow, generating a boost for the wider economy.”