UK Alternative Lender Spotlights Late Payments Misconception

U.K. regulators say late payments are jeopardizing the nation’s small- and medium-sized business community. Even with government intervention measures to help curb the practice, some small businesses say things are only getting worse. Data from Crossflow Payments published last month found one-tenth of small businesses reported their payment terms to have gotten worse in the last 12 months.

“There is no doubt that U.K. [SMBs] are facing a working capital crisis at the worst possible time,” said Crossflow Payments chief executive Tony Duggan in a statement, pointing to economic uncertainty, Brexit and other factors threatening the financial well-being of U.K. small businesses.

Earlier this year, research from SMB software company FreeAgent found that micro-businesses expect late payments regulations to fail, with just 2 percent expecting the Small Business Commissioner to succeed in efforts to curb late payments.

But new data released Monday (Aug. 7) from U.K.-based independent research consultancy BDRC Continental and Ultimate Finance is turning the spotlight on some larger companies also facing financial challenges due to late payments from corporate clients. According to a survey, 94 percent of businesses considered to be mid-sized — that is, those with more than 50 employees — say cash flow is impeded because of late payments.

The report also found that most SMEs agree late payments pose a problem for their businesses (81 percent), while slightly more than half (51 percent) say they believe operations would run smoother if they did not have to deal with late payments.

There is a lot of money tied up in delayed invoice payments, too, with 82 percent of businesses reporting they have as much as $32,580 in late payments.

But Ultimate Finance says this isn’t just a problem for the micro- and small-business community. In fact, according to its report, medium-sized companies can face a greater burden from late payments, with mid-sized firms seeing an average of more than $39,000 in late payments.

“We know that late payments can have a huge impact on small businesses,” said Ultimate Finance director of strategy Anthony Persse in a statement. “It is, without a doubt, one of the biggest challenges faced by U.K. companies. However, there is a deep misconception that this is an exclusively small business issue, which is simply untrue.”

Ultimate Finance also questioned regulators’ ability to effectively address this problem, noting that government intervention and regulation in this area is often divisive.

“This is leading to rules such as late payment reporting, which is creating an ‘us and them’ situation, when we should be seeking a workable long-term solution,” Persse continued. “This is not just a case of the bigger boys picking on the smaller guys. Cash flow and supply chain management affects every organization, and should be tackled by the community coming together to support one another.”

The executive said separate data from automated payment solutions company BACS — released late last year — found more than one-third of SMBs aren’t convinced late payments legislation will make a difference. Taken into consideration with the data from FreeAgent, it’s clear the business community does not have total faith in government intervention to address the problem.

“We have taken a look at the numbers,” Persse said. “Many [SMBs] have significant late payment debt and it’s clear something must be done. But current methods to help aren’t doing the job.”

He pointed to the bank referral scheme, an initiative regulators introduced to require banks to refer SMBs rejected for a bank loan to be linked to an alternative lender in a broader effort to support enhanced cash flow management in the small business community. But only a few months after the scheme began, the U.K. Treasury opened an inquiry to assess its effectiveness.

“The issue is that politicians keep coming up with one-size-fits-all ideas and trying to dictate to businesses,” continued Persse. “Both SMEs and corporates are full of intelligent people who understand the challenges better than anyone. They should be the ones to create the solution, with support from government and the wide industry — not the other way around.”