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Late payments have long been the bane of SME owners’ lives. But new research indicates that these late payments cause more than inconvenience. They’re causing depression and anxiety, too.

Brought To The Brink of Bankruptcy

The Prompt Payment Directory surveyed 1.000 SME owners with cashflow issues and found that 29% suffer from stress, anxiety or depression due to the worry of late payments.

This is horrifying, but barely surprising, since 18% said that late payments have brought their company to the brink of bankruptcy or liquidation because of late payments.

Other businesses, while not in quite such dire straits, still reported that late payments are having serious financial repercussions on their business.

29% said that staff morale, recruitment and retention has been affected by the money-saving steps they have had to take regarding staff.

The Long-Term Effects of Late Payment

The research also revealed how these financial issues caused by late payments are impacting the mental health and personal lives of SME owners.

It also showed how late business payments can have a profound effect on the personal finances of SME owners, with 36% admitting they’ve sacrificed their own salaries and 7% saying they’ve been forced to take out payday loans. 21% said they have had difficulties paying their own mortgage or rent, or have had to sell their homes, while 17% have had to remortgage them. 7%

“The financial implications of late payments have been well reported over the years but our research delves deeper into the repercussions of poor cashflow to reveal how it affects and even destroys people’s health and lives,” said Hugh Gage, managing director at The Prompt Payment Directory.

“The government’s Duty to Report is a welcome step in tackling late payments but it has its limitations. Only large companies are required to report and only twice a year, but late payment isn’t simply an issue between small suppliers and large customers. According to recent Labour party figures, a hundred and sixty thousand small firms were forced to pay their own suppliers late because of delayed payments.”

“Our research echoes these findings, with 26 per cent of SME owners claiming that late payments are either made by smaller suppliers or a mix of large and smaller organisations.”

“Also, the Duty to Report requires debtors to report on their own payment practices which is counter intuitive, plus an absence of context behind the reasons for the late payment makes it harder for small businesses to reach decisions before entering contractual relationships.”

Tackling the Problem

The research by The Prompt Payment Directory does indicate that some SMEs are fighting back. 39% said they enforce a late penalty fee and 35% said they’ve used a debt collection agency or law firm to recoup money. 24% have sought a County Court Judgement against a late payer and 22% said have blacklisted persistent late payers.

While it’s good that SMEs are taking action, these processes can be time-consuming -and shouldn’t be necessary. They’re tacking the symptoms, not preventing the ‘disease’ of late payment. So, does Hugh Gage see a strategy for prevention rather than cure?

“To end the UK’s poor payment culture, we need greater transparency throughout the entire supply chain and to encourage best practice, which is why we’ve set up The Prompt Payment Directory, so all companies can be rated on their payment behaviour whether good or bad, and by those that are affected – their suppliers.”

“Also, the Duty to Report requires debtors to report on their own payment practices which is counter intuitive, plus an absence of context behind the reasons for the late payment makes it harder for small businesses to reach decisions before entering contractual relationships.”

About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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