SMEs currently owed an average of £27,214 in late payments

Small and medium sized businesses are currently owed an average of £27,214 in late payments, according to new research from Intuit QuickBooks, as SMEs estimate one in six invoices (17%) with customers or suppliers are overdue.

And the problem is growing – more than half (52%) of SMEs agree they have been more affected by late payments in the last year. Frustratingly, the most common reason an invoice goes unpaid is because it was simply forgotten (23%) – although the supplier experiencing their own cash flow issues and not being able to pay comes in a close second (20%).

Late payments impact business owners’ wellbeing and finances

The impact of late payments on business success is so significant that two in five small business owners (41%) say there is a real risk of their business being forced to close in the next year if the same level of late payments continue. This proportion rises significantly to 53% of SMEs in London and 57% in Scotland.

For business owners, this can have a personal impact. Among those who have been impacted personally, 35% have been forced to dip into personal savings to keep the business afloat, while 31% have been unable to save at all. Worryingly, more than a quarter (28%) have experienced poor mental health.

Late payments also damage SMEs’ future chances of business success. Amongst those impacted3, late payments have resulted in SMEs being unable to reinvest in the business (26%) or achieve their business objectives (20%). There is also a knock-on effect as 26% have not been able to pay an invoice to another small business (26%) or pay their own suppliers (25%).

At an administrative level, late payments waste time – in a typical week, SMEs spend an average of four hours chasing late payments, adding up to more than 8.5 days per year.

SME Publications/ SME XPO 2024

Helen Matthews, Founder of independent paddleboarding business, SUP With Us, comments: “Cash flow is critical to me as a small, independent business, and I rely hugely on payments coming in on time. Being paid late for my services can really throw my budgeting plans into disarray, and a bad season can even impact my ability to pay my bills and rent on time. The weather-dependent nature of my business means that in a typical English summer of wind and rain my income can fluctuate, and having to chase down late payments adds to the stress of worrying about the weather and keeping my business going.”

Financial management software removes barriers to faster payments 

With SMEs feeling annoyed (30%), uncomfortable (23%) and at risk of damaging client relationships (22%) when chasing late payments, solutions that automate this process – and help prevent overdue payments in the first place – can be extremely valuable. Three in five (60%) SMBs say they are not currently using financial management software for pay-enabled invoicing in their business (i.e. software that makes it simple for customers to pay faster).

But for those who do, a quarter (25%) have successfully reduced the number of outstanding invoices on their books, leading to stronger cashflow (21%) – while a fifth (21%) have improved relationships with customers due to not having to chase invoices manually.

Helen adds: “It’s surprising to me that so few SMBs are using software to help combat the issue of late payments. I use QuickBooks as my financial management software, which puts the information for late payments all in one place and allows me to stay on top of what I’m owed. It even automates chasing them for me, which is always the most awkward part!”

Nick Williams, UK Product Director at Intuit QuickBooks comments: “Late payments continue to be a significant barrier to small business success. Clients simply forgetting to pay on time is not acceptable when the impact can be so severe. There is also a clear knock-on effect when SMBs are not paid within their terms, with many then unable to pay other suppliers – creating a chain of cashflow problems that adds up to a big hit to our economy.

“Fortunately, the research demonstrates there are proven benefits to financial management software when it comes to invoices. Not only does pay-enabled invoicing make it easier for clients to pay with the click of a button, but the software also generates automatic reminders, removing the frustration and wasted time experienced by many SMB owners. Accountants are also valuable partners when it comes to spotting late payments trends and mitigating the impact on cashflow. With cash being king, this makes it not only easier for SMBs to run their business, but to succeed.”

SME Publications/ SME XPO 2024