The UK economy depends on small businesses; they employ over 16.7 million people across the country, with an estimated turnover of £2.4 trillion. However, despite their importance, many of the nation’s smallest firms are being crippled by late payments, or ‘unapproved debt’ as we argue is a more fitting term, an issue which rarely gets the attention it deserves. As a result of this avoidable issue, lots of small business owners suffer cash flow challenges which can impact both their financial and mental health.
There is however, growing public concern about the issue, with Xero’s recent report, ‘Settle Up’ finding 70% of consumers view paying bills late as a form of theft or bullying. In this context, both the government and big businesses should expect to find themselves under closer scrutiny, until we start to see evidence of better payment etiquette.
Crippled by the cost of late payments
Xero’s research revealed that the late payment crisis cost UK small businesses an eye-watering estimated £1.6 billion in 2023. But since then, the problem has actually worsened. Recent data from Xero’s Small business Index showed that late payment times between April and June 2024 were the longest since the pandemic, with some small firms waiting over a week to be paid beyond their agreed payment terms.
For those affected, not only is their cash flow put under undue strain, but also their livelihoods. Owners are sometimes being forced to use personal reserves to ensure their staff and suppliers are paid on time, which is completely unsustainable. At the same time, the data showed that many small businesses saw subdued sales and employment figures over the last quarter, meaning they just cannot afford to wait to be paid on time.
It’s time for government action
As the issue of late payments has become more entrenched, it has started to enter public discourse. Our research found 80% of consumers think there is no excuse for large firms to pay their suppliers late.
People also believe that large businesses should behave better, and are calling on the government to act. Over three-quarters (77%) of consumers believe that it falls to policymakers to ensure businesses behave responsibly, while 62% say they expect tackling late payments to be among the new government’s highest priorities.
Labour pledged to take action on late payments in its election manifesto. But, disappointingly, there was no mention of support for small businesses or tackling the issue in the King’s Speech in July. It is crucial that the government, amongst its many competing priorities, delivers on its commitment to help this vital segment of the economy to thrive. For example, the implementation of a Fair Buyers’ Act could effectively hold big business offenders accountable.
It pays to pay on time
While government action is key to improving the attitude of big businesses, there is also an economic reason why large organisations should improve their payment times. Some 72% of consumers said they wouldn’t buy from companies that don’t pay their bills on time, while 70% said they would be more likely to buy from a business that paid their suppliers and small businesses what they owe, when they owe it.
If large companies were required to report on how much unapproved debt they are using to finance their operations, public scrutiny would only increase. This could also lead to firms who do treat their suppliers well being rewarded by the public, adding even more incentive for competitive businesses to operate more ethically.
No time to lose
Neither the government nor big businesses can afford to sideline the issue of late payments. Our research indicates public outrage at the inertia that’s been seen thus far, with people demanding action from Labour. But the clock is ticking – both policymakers and repeat offenders must act now if the UK small business economy is to thrive once more.
