Are UK Efforts Against Late Supplier Payments All In Vain?

The issue of late supplier payments in the U.K. seemed to reach a fever pitch in 2016. Government officials introduced new incentives and requirements for speedier B2B payments, and top corporations made promises to pay their own small suppliers on time. And yet, the problem continues.

That’s according to Amicus Commercial Finance, which released its latest survey on the issue. According to the report, 61 percent of invoices sent by SMEs in the U.K. go the entire span of the pay period without getting settled. Of the businesses that reported this problem, 70 percent said that prompt payments are paramount to being able to manage cash flow and stay afloat.

For those invoices that remain unpaid at the end of the debtor pay period, 16 percent go an additional 90 days without being settled, and 7 percent go six months without being paid, researchers found.

There is a knock-on effect of this scenario, the report noted, with 41 percent of respondents reporting that late payments mean they can’t pay their own supplier payments on-time. Nearly a third said late payments lead to delayed debt repayments, while purchasing inventory, making payroll, losing contracts and accessing additional financing are also disrupted by a delayed payment cycle, survey respondents said.

“Our research shows that most small firms recognize the damage caused by cash flow problems, but that doesn’t guarantee their immunity,” said John Wilde, managing director of Amicus Commercial Finance, in a statement. “The worst-case scenario is insolvency, but in our experience, slow-paying invoices are often to blame.”

According to the latest data released by U.K. publication The Gazette, more than 760 businesses closed in Dec. 2016 alone, with more expected to follow suit. U.K.-based insolvency firm Hudson Weir conducted research that found that 1,093 businesses in the nation are headed for insolvency this month.

Analysts are looking at all potential causes of the SME insolvency rate, but many agree that cash flow challenges resulting from late payments are often to blame.

According to Amicus’ Wilde, traditional SME financing and cash management solutions aren’t able to resolve the issue.

“As working capital and cash flow are by their very nature dynamic, most traditional systems have failed to keep pace over the last few years,” he said.

Late payments and the threat of insolvency have a dramatic impact on the wellbeing of the U.K.’s small business owners, researchers also found. Analysis revealed that 28 percent of SMEs say they are facing stress and anxiety as a result of these cash flow problems, and nearly a fifth said their frustration at late payments has led to “anger.”

Only 10 percent of small business owners said late payments have caused them concern that their business would fail, but considering the latest data on small business insolvencies, that percentage perhaps should be higher.

Late supplier payments have become a focus of U.K. regulators as of late. Small Business Minister Margot James released new “Duty to Report” rules last month, requiring businesses to reveal their payment practices and habits when it comes to supplier payments.

“Unfair payment practices and unnecessary red tape hamper [SMEs’] ability to grow and have no place in an economy that works for all,” James stated when announcing the rules. “By shining a light on how large businesses pay their smaller suppliers, we want to empower small businesses and drive real change in payment culture.”

The U.K. has also introduced the Prompt Payment Code, a set of voluntary agreements corporations can agree to in order to pay suppliers on time. Yet, many of these initiatives, critics warn, are unenforceable. With the latest data from Amicus Commercial Finance, it seems that they aren’t working, either.