Small businesses are owed an average of £12,357 in late payments every year, according to new research by Hiscox.
There are 5.7 million small businesses in the UK, which means that outstanding payments across the country could total £70.4 billion.
Hiscox surveyed 1,000 small business owners and sole traders via Censuswide. The findings are part of the specialist insurers’ inaugural Late Payments Report, which explores the scale and impact of late payments for small businesses in the UK
The report comes as the government’s Fair Payment Code, introduced last year to tackle late payments, continues to gain traction.
Small businesses spend nearly a year waiting for late payments
On average, it takes three weeks from the due date for a late payment to be made. With businesses chasing an average of 14 late payments annually, according to Hiscox’s research, that adds up to 331 days of cumulative waiting time across all invoices in a year.
For more than one in six small businesses (17%), it can take over a month after the due date to receive payment. And in some cases, the payment is never received.
A business owner, who wishes to remain anonymous, confided in Hiscox: “There’s always the fear that someone won’t pay up. I’ve had it only twice in nine years where an invoice hasn’t been paid at all. The first time it happened, they were my only client, and it meant I had no money for two months.
“Working for yourself is a joy. It’s the best. But when people don’t pay up, it not only throws your finances into issues, but it also affects your confidence and piles on stress. It means you always need money set aside for worst-case scenarios.”
Almost a quarter of all payments arrive late
Almost a quarter (23%) of all payments to small businesses are late, according to Hiscox, something that increases with business size.
On average, 19% of payments to sole traders are late; this increases to 25% of payments to businesses with 10-49 employees.
Small businesses are chasing an average of 14 late payments. Some sectors face an even higher number of missing payments, with the IT & Telecoms industry topping the list.
The sectors chasing the highest average number of late payments are as follows:
|
Sector |
Late Payments |
|
IT & Telecoms |
18 |
|
Finance |
17 |
|
Healthcare |
16 |
|
Retail, Catering & Leisure |
15 |
|
Legal |
14 |
Business expert shares five tips for reducing the risk of late payments
Following up with a phone call (37%), building strong client relationships (36%) and being very clear with payment terms (36%) are the most common tactics employed by business owners to recover late payments.
Nick Thornhill, Direct and Partnerships Director at Hiscox, has compiled five steps that small business owners can take when navigating late payments.
He outlines: “As a small business insurer, we know that cash flow is the lifeblood of any business. Yet late payments remain one of the biggest challenges for entrepreneurs and small businesses. Knock on effects of late payments can disrupt cash flow, impact payroll, delay investment, and seriously compromise a business.
“Here are some practical small steps small businesses can take to reduce the risk and impact of late payments:
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Be quick to invoice- Send invoices as soon as the job’s done. A late invoice could be seen as an open invitation for a late payment.
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Keep it friendly- Most of the time, people aren’t paying late on purpose. A quick, reminder can go a long way. But if late payments keep piling up, don’t be afraid to address them.
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Break it down- For big projects, ask for deposits or milestone payments. That way, you’re not left waiting for a lump sum at the very end.
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Have a game plan- Chronic late payer? Decide ahead of time what your line in the sand is. Maybe it’s charging interest, maybe it’s hitting pause until payment clears, or maybe it’s moving on.
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Consider using insurance as your safety net– Ultimately, while insurance can’t prevent late payments, it can help to protect other important areas of your business, providing peace of mind and practical support to mitigate the impact when things go wrong.
“Late payments might be a recurring character in the small business world, but they don’t have to be a thorn in your side. With some clear rules, you can keep your cash flowing and your focus where it belongs – growing your business.”
Read Hiscox’s full Late Payments Report for more insights and practical advice.