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Debt mountain for SMEs(1) generates self destructive behaviour

Small and medium sized businesses have been forced to take out £31.5 billion in funding to maintain their cash flow due to slow payments (1) - equivalent to the cost of hiring 640,000 new employees for a year(2) - according to new research from Previse(3). .

Funding cashflow

One in five SMEs (20%) typically wait 90 days or more for payments from clients, with buyers taking on average 34 days to pay invoices. As a result, slow payments impact cash flow for 77% of small businesses and force them to utilise expensive financing options to pay their own bills with typical interest rates of over 20% APR.

Many SMEs require multiple funding sources to help cover their cash flow crisis with the most common forms of funding being business credit cards (46%), overdrafts (40%) and business loans (38%). One in five (20%) company founders are forced to take out personal loans to cover their business’s cash flow problems.

Consequences of late payment

Late payments lead to 50,000 UK small businesses being forced to close each year(4). It is happening the USA as well. Fundbox surveyed small businesses in the U.S. to understand exactly how unpaid invoices affect their growth. They found that there are six ways slow payments affect businesses:

  1. Highering freeze - 23% cannot hire new employees
  2. Owners take a pay cut - 79% of business owners cannot pay themselves
  3. New equipment gets the squeeze - 23% cannot invest in new equipment
  4. Stop marketing - 20% cannot spend on marketing
  5. Working for less - 18% holdback on pay increases or bonuses for employees
  6. Inventory cut backs -17% cannot build up inventory

New solution for late payment

Dynamic discounting has been around for many years which pays (with a reduced amount, a discounted amount) from the date the invoice is approved, but that can be many days/weeks from when the good(s) are delivered. 

A much more satisfactory solution for SMEs would be to be paid from date of delivery of the good(s) or service(s). Previse have developed a new solution, based on machine learning technology, that enables large buyers to safely ensure they can pay all suppliers instantly, cash-on-delivery, removing the need for SMEs to access costly financing. 


1. Number of SMEs taking loans to cover cash flow according to Previse’s research (29%) as a percentage of total SME funding according to UK Finance’s latest quarterly lending figures (£108.7 billion)

2. Total lending figure divided by the cost of employing a worker on the average UK salary using ASFB’s employee cost calculator: 

3. Surveyed carried out by Censuswide with 500 “C-suite decision makers” inside UK companies with turnover between £100,000 and £50 million with the majority between £1 and £10 million.

 4 “Time to act: the economic impacts of poor payment practices” – Federation of Small Business, 2016.

CTMfile take: As we have said again and again, “late payment is a cancer that destroys SMEs” - as Fundobox’s research shows. Also it is not just the funding cost and the other areas listed above that impact, it is the time and psychological effort chasing the late payments that really hurts.

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