Late payment is suffocating SMEs, but supply chain finance can help

By Tony Duggan, CEO, Crossflow Payments

Every small business owner knows that having access to working capital is vital. Without it, they are unable to invest in their own proposition and ultimately grow their business. Yet access to working capital is routinely blocked by the same problem – late payment.

Recent research commissioned by Crossflow Payments, in conjunction with YouGov,  examined the full extent of the late payment problem1 and identified that over half (55%) of all late payments are delayed by 10 days or more.

On a nationwide scale, £266 billion of annual UK SME turnover is lost to the late payment labyrinth. These funds which would further boost the bedrock of the UK economy. What’s more, small business owners have the desire to do exactly that. If payment terms improved, one in five (22%) would increase their marketing budget. While a further fifth (17%) would hire more staff and increase the salaries of existing staff (17%).

Late payment is an endemic problem and the government has only recently started to address it head on.

Business owners unaware of new rules – and not confident they’ll work

In January, the government introduced new payment reporting standards2. The standards outline that large businesses must report their payment practices, policies and performances on a half-yearly basis.

Furthermore in the last week, the government’s biggest suppliers voluntarily committed to the Prompt Payment Code, and will work towards paying 95% of invoices within 60 days3.

While this is clearly a step in the right direction, there is a distinct lack of awareness of the new obligations. Only one in five (22%) small business owners knew of the obligations when asked. However, once informed of the new standards, three quarters (74%) of small business owners said the obligations will do little to alleviate the problem.

There is a reason why SMEs believe the new code will have little or no effect on the situation. Large corporates are highly unlikely to reduce their own working capital to pay suppliers faster, especially with uncertainty on the horizon, in the form of Brexit negotiations.

They are more likely to negotiate longer payment terms with their SME suppliers who rely on their business to remain solvent. In essence, they will shift the goalposts to create the illusion they are paying on time, even though the SME will be receiving payment at the same time as before. However, the reporting obligations do recognise the vital role of supply chain finance as a tool corporates can use to support the rest of their supply chain.

FinTech can reform supply chain finance

Supply chain finance certainly has its benefits. Platforms such as Crossflow Payments meet the payment demands of both large corporates and SME suppliers. They do not incur extra fees on top of the base rate, easy to implement into existing IT infrastructure, grant access to approved invoices within 48 hours and require no personal guarantees to sign-up – all of which is ideal for time-poor business owners.

An increasing number of large corporates are turning to sophisticated models of supply chain finance to ensure their suppliers receive payment on time. But the government has failed to recognise its benefits in the new reporting obligations. The average payment date that corporates report fails to take into account the date on which funds are released from the corporate’s bank account if it is using a supply chain finance platform.

This oversight needs to be rectified to help advertise the benefits that a supply chain finance solution can have unlocking a small business’ working capital. The effect could benefit many more SMEs, looking to improve their payment terms and use the additional funds to grow their business. With Brexit negotiations on the horizon, and a period of economic uncertainty set to ensue, it is now more important than ever that SMEs have access to working capital.


1Crossflow Payments Late Payments Research, April 2017.

2 Duty to Report on Payment Practices and Performance, January 2017.

3 Suppliers Commit to Prompt Payment Code, July 2017.