The ICAEW has urged Boris Johnson’s new Government to help businesses with the increasing problem of late payments faced by SMEs.

The latest BCM (business confidence monitor) showed that business outlook remains negative, with late payments from customers a key and growing concern among businesses, and particularly SMEs.

Late payments are a greater challenge than they were a year ago for one in five businesses, according to the report, while six out of nine sectors (Property, Business Services, Manufacturing & Engineering, Construction, Retail & Wholesale, and Banking, Finance & Insurance) are experiencing this as a growing issue.

The problem is even larger for SMEs, with almost a quarter (24%) reporting this as a problem.

Tim Gardiner, Finance Director at Panton McLeod Limited said: “The most obvious case of abusive slow payers is still large corporates, particularly in the construction industry.

“A large part of the problem is where companies have complicated processes for the submission of invoices or claims for payment, combined with a lack of clarity as to who is the contracting company in relation to large scale projects.

“This arises from intermediaries acting on behalf of utility companies in my experience.”

According to statistics released in May by the federation of small businesses (FSB), 50,000 small firms go out of business because of late paying clients, and it is a clear problem that needs addressing.

Brexit not the only problem for businesses

Around two fifths of businesses also reported regulatory requirements and customer demand as increasing challenges.

Following the report, the ICAEW has urged No.10 to remember that businesses are facing problems other than just those presented by Brexit.

Michael Izza, ICAEW chief executive, said: “The Prime Minister has promised Brexit by 31 October and the overriding priority of his government must be to get a good deal. More than anything else that will give business the stability it is crying out for.

“However, this feedback from our members, who advise businesses in every sector and level of the economy, reminds us that they face other challenges as well, many of which have little to do with Brexit – such as late payments and the regulatory burden.

“Robust Government action on these issues could make a real difference to the business environment, especially for SMEs, and would help to restore confidence and momentum.

“That would go some way to unlocking the economy and ensuring it is in the best shape to face the challenges and opportunities of life outside the European Union.”

SMEs fear reprisal from clients

In July, it was reported that 75% of SMEs would rather not chase late payments out of fear of damaging their relationship with their clients.

A further 76% said they were more worried that their invoices would not be paid at all if they took a harsher stance against late payments from their clients.

This data came in a white paper from the Small Business Commissioner, Paul Uppal, who at the time said: “The key findings in this survey highlight that small businesses tolerate late and non-payment due to a fear of reprisal.

“The government is building an environment in which small and medium-sized businesses can continue to prosper.”

The white paper surveyed 500 UK SMEs, with more than a third saying they had been subject to unfair payment practices, while 47% said they had faced late or unfair payment practices from larger businesses.

Why do companies pay late?

Earlier in the year, Bottomline, a software company that specialises in business payment solutions did a study that found 92% of businesses they spoke to admitted to paying suppliers late.

The figure and willingness to admit doing so shows the lack of accountability when it comes to late payments.

Speaking on the figures, Dr Louise Beaumont, an independent chair, advisor, investor and expert on the subject of late payments gave insight into why businesses are paying late, saying: “It varies. Sometimes they’ll say the quality wasn’t quite what we expected so they withheld payment, or that they found a typo on the invoice, so they kicked it back to buy themselves a little bit more time.

“Sometimes they say their payments processes are terrible, so their own processes get in the way of them paying on time. And some say they withhold pay to protect their cash flow and prioritize other payments.”

Dr Beaumont said that business pay late “Without understanding the vulnerability they are baking into their own business by doing that. Because if you rely on suppliers, and most companies do, putting them [suppliers] in a position of absolute vulnerability is an act of self-harm.”


Other BCM findings:

Business confidence still negative

Another key finding from the ICAWE’s BCM was that business confidence is still negative this quarter, at -10.3, although this is higher than it was in Q2 2019, where it was at -16.6.

However, whereas in Q2 confidence was trending upwards, within Q3 it has trended downwards, impacted by both national and global events.

British Steel’s insolvency and the announcement of the closure of Ford’s Bridgend plant, as well as evidence of a global slowdown and international political anxieties, particularly with regard to Iran were all cited as reasons for the downturn in business confidence.

This trend has reversed gains that were seen after Article 50 was extended in April, and confidence levels are almost as low as they were following the EU referendum in 2016.


From: ICAEWBusiness confidence was found to be negative in every sector, but particularly in Retail & Wholesale, Property, and Transport & Storage.

Confidence among SMEs is not as negative at with FTSE 350 companies and foreign-quoted companies, due to larger and international companies more exposed to global factors such as trade wars and protectionism.


GDP growth likely to be weak in Q2 and Q3 of 2019

The BCM’s Confidence index suggests that the UK could see growth of only 0.1% in Q2 and 0.2% in Q3.

Preparations for a ‘no-deal’ Brexit on 31st March caused a boost In Q1 as businesses increased their stocks, but any growth in the rest of 2019 looks likely to be limited.

There is potential for an improvement in consumer and business confidence following recent announcements of increased government spending and possible tax cuts. However, there is no plan for these to be implemented immediately.

Meanwhile, the new Brexit deadline of 31st October is looming creating the possibility of a ‘no deal’ or a general election, or both, and uncertainty is set to continue for some time.


Notes from the ICAEW on the Business Confidence Monitor:

The Business Confidence Monitor (BCM) survey began in 2003.

1,000 Chartered Accountants responded to a telephone survey between 22 April 2019 –  19 July 2019. Businesses were categorised in terms of size (no. of employees), region and industry sector. Regional classification used was ONS Government Office Regions.

The BCM survey covers over 1% of economic activity both for the UK as a whole and for different UK regions. This assures our data captures accurately the mood of UK senior business professionals.

Business Confidence Index methodology – The Business Confidence Index is calculated from the responses to the following:

“Overall, how would you describe your confidence in the economic prospects facing your business over the next 12 months, compared to the previous 12 months?”

A score was applied to each response as shown below, and an average score calculated:

Variable Score
Much more confident +100
Slightly more confident +50
As confident 0
Slightly less confident -50
Much less confident -100

Using this method, a Confidence Index of +100 would indicate that all survey respondents were much more confident about future prospects, while -100 would indicate that all survey respondents were much less confident about future prospects.

Oxford Economics one of the world’s foremost advisory firms, providing analysis on 200 countries, 100 industries and 7,000 cities and local economies. Their analytical tools provide an unparalleled ability to forecast economic trends and their economic, social and business impact. Headquartered in Oxford, England, with regional centres in London, New York, and Singapore and offices around the world, they employ one of the world’s largest teams of macroeconomists and thought leadership specialists.

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