Research released by accounting software Xero puts the average amount owed by SMEs to suppliers at £8,811. Combined with the 5.6m SMEs in the UK, it amounts to £49,341,600,000‬.

The research also revealed a domino effect as the UK SMEs in turn, struggle to receive payments due.

UK SMEs are owed an average of £23,360 in late payments on any given day, a 17% year on year increase.

“It has a huge impact on the economy,” says Donna Torres, director of small business at Xero. “If small businesses don’t get paid then they’re also potentially not paying their suppliers. That’s a huge concerning number which obviously hits the economy and slows it down – it’s really worrying.” 

The research also found that under half (48%) of invoices issued by small businesses are paid late, and as a result a quarter (26%) of small business owners struggle to pay their own suppliers on time. 

“What’s also quite sad is that late payments also have an impact on SME owners’ wellbeing, how they feel about running their business and how that then could put off prospective entrepreneurs; it’s sad that small businesses feel isolated,” says Torres, adding 43% of business owners said that late payments caused them sleepless nights and affected their mental health (44%).

76% agree their business feels more “worth it” without cash flow problems, and 37% have considered closing down their business because of cash flow issues relating to late payments.

SME owners have also turned to desperate funding to make up the late payment shortfall, with 52% using money from personal savings or from friends and family.  

“Accountants can help support small businesses with these difficult conversations.” – Xero

“Chasing up cash flow is not a conversation small businesses find easy,” says Torres, “that’s not why they started up their business. Small business owners aren’t using the tools that help them nor are they sending reminders or picking up the phone. Accountants can help support small businesses with these difficult conversations.

Xero has recently teamed up with payment giant, PayPal, to speed up invoice payments, by up to 21 days in some cases. 

“We have been working closely with Xero to try and find solutions to help businesses get paid faster,” said Nicola Longfield, director of small and medium business at PayPal UK. “Late payments sap both time and money, and prevent a business owner from investing in the technology, staff or stock needed to sustain and grow their business.”

But Xero’s Torres appreciates technology alone is not a one fix saviour.

“The Xero Paypal tool is not going to suddenly fix it overnight,” she says, “but it can help them set reminders while PayPal adds instant payouts. It’s just small things that build up that can really help small businesses get paid.” 

To find out more about how late payments are affecting small businesses read the full report here.

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