Waiting on customers to pay can be one of a small businesses’s biggest headaches and an all too common story. In fact, according to Crossflow Payments, the supply chain finance solutions platform, an estimated £266bn of SMEs’ turnover is annually held up in late payments. And while the government introduced new regulations in April to address the problem, new research has revealed that most small firms aren’t holding out much hope that the new rules will make a difference.
The regulations came into force to ensure larger corporates pay their suppliers on time. These new standards included bi-annually requirements to report how prompt their payments have been and the threat of criminal charges for any big business that fails to report on their payments. However, Crossflow Payments has found that 74% of 1,000 SME decision makers it polled don’t think the new guidelines will have any discernible impact. Additionally, it says that the fact that 78% of SMEs don’t even know about the new obligations would make it difficult for them to use the rules to persuade clients to pay.
Commenting on the research, Tony Duggan, CEO at Crossflow Payments, warned that the new rules could even exacerbate the situation. “An unintended consequence of the rules is that large corporates are likely to respond by negotiating longer payment terms with suppliers to shift the goalposts and create the illusion that they are paying on time,” he said. “Add to the mix difficult trading conditions thanks to Brexit and we could see Britain’s late payment crisis deepen significantly.”
Duggan urged the next government to continue tackling the late payment crisis by ensuring that the new business commissioner is appointed in a timely fashion and given the right support. “As the lifeblood of the UK economy we cannot afford to ignore the late payment problem facing SMEs any longer,” he said.
And given that 72% of SME struggles are related to late payments, ensuring big corporates cough up in a timely fashion should be at the top of the incoming government’s agenda.