- Data reveals the scale of debt the average small business is forced to deal with due to late payments
- Small business owners deal with debt equivalent to 11 months of the average staff wage, 9 family holidays or 37 months of mortgage payments –
- Xero releases statistics from Xero Small Business Insights, a monthly dashboard offering deep insights more regularly than any other company, giving policy and industry decision makers real-time insight into the health and conditions of small businesses
New statistics analysed from Xero’s UK small business subscriber base shows that the average British small business is owed £24,841 in late payments on any given day. Based on data taken from 2 million invoices, this equates to 11 months’ average staff wage*, 37 months of average mortgage payments** or 9 family holidays*** and suggests that the SMB economy could be forced to deal with an average deficit of £141bn as a result of this debt.
Anonymised, aggregated data generated by thousands of UK businesses using Xero’s accounting software, revealed that over three quarters (78 per cent) of SMBs are owed money at any one time outside of agreed payment terms. The data showed that in August the average 30 day invoice was paid after 39.67 days, almost 10 days after payment is due. Furthermore, when reviewing overdue 30-day invoice payments the average late invoice was found to be paid 64 days after issue, more than double the payment term.
The industry with the highest percentage of invoices paid late was found to be Transport, Postal and Warehousing, with 68 per cent of invoices overdue over the last year, followed by Electricity, Gas, Water and Waste Services (62 per cent) and Manufacturing (60 per cent).
The top 10 small business sectors on Xero owed the most from late payments on average:
- Wholesale trade (£42,989)
- Administration and support (£40,662)
- Transport, postal and warehouse (£31,555)
- Public administration and safety (£31,541)
- Electricity, gas, water and waste services (£31,309)
- Financial and insurance services (£29,732)
- Manufacturing (£29,123)
- Information, media and telecoms (£28,682)
- Construction (£25,880)
- Professional, scientific and technical services (£23,554)
Edward Berks, EMEA Director, Platform Business at Xero comments: “At a time when the world needs small business to succeed it’s estimated that 50,000 businesses in the UK fail each year because of cash flow issues.
“Our data shows the impact that this level of debt can have on small companies. Predicting working capital requirements still remains a challenge for small businesses and accessing finance remains expensive and time consuming. But, it’s increasingly critical that the Government and industry takes the right steps to ensure that small businesses get paid faster. New measures to crack down on big business culprits and smarter technology to automate payments will all help to alleviate the pressure on small business cash flow.”
The data is revealed as the government announces new measures to arm small businesses against unfair contracts that stop them raising money from unpaid invoices, as well as a call for evidence to help protect small businesses against large companies who abuse their position in the market.
Vicky Pryce comments: “In the current climate of increased uncertainty, tighter margins and a shaking out of supply chains, late payments just add to the costs of small firms, particularly now as interest rates are on an upward trend. And needing to borrow more, in an unplanned way, does little for a firm’s credit rating, making life more difficult in the future.
“Late payments tend to shift the balance in favour of larger firms either because they are the ones who benefit from paying late or can better withstand the working capital pressures if they themselves are having to cope with late payment of invoices by others. And yet it is the millions of small firms that provide around half of the employment in the UK and much of the economy’s productivity and growth depends on them functioning in a healthy finance environment.”
Three tips to improve cash flow and protect businesses from late payment debt:
- Be selective about who you work with and credit check prospective clients. A bad credit history could indicate issues with late payments in the future
- Implement interest charges on late payers to encourage prompt payment
- Set automated responses: Many accounting software solutions are now capable of issuing automated reminder letters when payments become overdue. Automating the process of sending a reminder email reduced the amount of time you have to spend waiting and chasing for payment.