Late Payments Disproportionately Impact Small Businesses

Small businesses are the backbone of the American economy, but many of these companies say that they encounter delays in receiving payments from their larger private sector, public sector and nonprofit customers.

Late payments have a “disproportionate impact” on small businesses, according to a recent press release on a poll from small business-focused accounts payable (AP) firm Melio and YouGov. Faced with delayed payments, small companies have thought about postponing hiring or buying inventory — or even reducing employee hours.

Small businesses in the U.S. aren’t the only companies facing late payments, as the practice impacts companies operating around the world. This week’s B2B Data Digest looks at the challenges of late payments — and one program designed to provide early payments to vendors of one supermarket chain in the U.K.

90 percent is the amount of a selected invoice that small to medium-sized businesses (SMBs) will be able to finance and receive funding in their account within one day via ABN AMRO’s Snel Betaald solution, as PYMNTS previously reported. The offering is particularly helpful for smaller companies that aren’t able to access other financing products “either because they are still too young, or because they are not yet showing a solid financial performance,” according to Patrick Pfaff, director of Commercial Banking Clients at ABN AMRO.

Half of U.S. small businesses believe that late payments should incur sizable interest according to the Melio/YouGov survey. The survey found that small businesses have thought about postponing hiring, delaying buying inventory or reducing the hours of their staffers. However, if they received payment in a more expedient manner, companies would invest in expanding their businesses or repaying loans and lines of credit faster.

47 percent of U.S. small businesses say that payments by large companies have become worse because of the COVID-19 pandemic, according to the Melio/YouGov survey. Moreover, three in ten U.S. small businesses believe that late payments are impacting the capacity to keep their companies open. “Late payments have a disproportionate impact on small businesses, leaving the backbone of the U.S. economy saddled with past-due invoices,” according to the press release.

Net 30 is the payment terms that most U.S. small businesses have, according to the Melio/YouGov poll. But most of these companies experience late payments well after the due date, with 25 percent needing to wait in the range of 20 and 30 days. “Most payment terms are 30 days, so when a survey shows late payment of 20 days beyond those 30, that means a small business is waiting as much as 50 days to get paid,” Melio CEO and co-founder Matan Bar said in the release.

18 months is the amount of time for which Tesco’s voluntary supply base sustainability-linked supply chain finance program has been under development, according to an announcement in April. “In this critical year for climate action, we’re delighted to be able to offer thousands of suppliers access to market-leading supply chain finance linked to sustainability,” Tesco Chief Product Officer Ashwin Prasad said in the announcement. However, The Times, a British media outlet, reported in May that Tesco was criticized for “linking early payments to suppliers’ green targets.”