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Late payments could put a quarter of UK SMEs at risk of insolvency

A recent study by Tungsten Corporation show that nearly a quarter of all small and medium sized businesses in the UK are facing a potential financial crisis due to late payment of invoices. The average SME is owed £40,857 in unpaid invoices, with £20,937 of that total overdue. Of the 1,000 companies surveyed: 

  • nearly a quarter of SMEs (23%) have been put at risk of insolvency over late payments
  • the problem being endemic across buyers of all sizes – 22% said large businesses were the worst culprits, 11 % blamed other SMEs and 33% said there was no clear pattern
  • tech sector firms were most affected – 32% had faced risk of closure

The survey results suggest that the issue spans customer sizes and types, with 22 per cent of those surveyed saying most of their late payments were from large businesses, 11 per cent pointing to medium-sized firms and eight per cent identifying the public sector as being responsible for late payments. Some 33 per cent of businesses surveyed said that there was no clear pattern.

Total owed in UK and current challenges faced by SMEs 

When applied across the UK’s 5.2 million SMEs, the total owed could be as much as £212 billion. 

Richard Hurwitz, CEO at Tungsten, said: “These figures are a telling reminder of the challenges faced by SMEs in this country. An unpaid invoice can mean the difference between a successful month of trading and a dangerous financial shortfall. In the worst case it could lead to insolvency.”

Hurwitz continued: “The creation of the new role of Small Business Commissioner shows that the government is taking the problem seriously, but it’s clear that there’s work still to be done to ensure that SMEs are paid in a timely fashion.”

Reasons and solutions for late payments

Hurwitz, “There are many reasons for late payment. Sometimes buyers will wait until the last day before the invoice is due only to tell their supplier that it is missing vital information. This creates unnecessary delays. Advances in technology mean that many payments can now be processed electronically, which ensures invoices have all the necessary information, but e-invoicing was only used by a quarter of the small businesses we spoke to.

“Late payment is a problem to which there are simple, effective solutions,” Hurwitz added. “If companies adopt a modern approach and investigate alternative finance options, coupled with ongoing government support, we can make these business practices a thing of the past.”

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Payments - Receipts
Accounts Receivable Management
Order-to-Cash Cycle in WCM