Late payment epidemic set to cripple exports as over a third of SMEs left without contracted payment terms

  • New research reveals more than one in three (38%) UK SMEs receive no payment terms from their customers
  • Over half a million businesses give up on exporting due to chronic late payment problem
  • Long and repeated history of being denied access to working capital has left SMEs in a long-term cycle of despair
  • New financing solutions can help break the cycle and will leave SMEs better prepared for leaving the European Union

Small and medium-sized UK businesses are being severely impacted by chronic reductions in working capital, according to new research of over 1,000 SMEs commissioned by Crossflow Payments, the FinTech platform delivering supply chain finance solutions.

For many SMEs, uncertainty around when they will get paid is all too common. More than a third of UK SMEs (38%) admit to having no set payment terms with their customers, with almost a quarter (23%) complaining that they regularly receive payment for invoices late. Of those receiving payments late, more than half (55%) are left waiting ten days or more beyond their contracted terms.

This dire situation leaves SMEs dangerously exposed with many expecting a further squeeze as a result of Brexit uncertainty. More than one in ten (11%) SMEs say they have experienced a worsening in payment terms in the last 12 months, and 8% are coming under further pressures as customers increase payment terms as a result of Brexit woes.

Crippling exports

Late payments are also hurting UK business’ ability to trade around the world at a time when Brexit pressures mean exploring new growth opportunities is more important than ever. The findings indicate that over half a million businesses are being held back from expanding overseas due to the chronic late payment problem.

It’s clear that tackling the late payment problem is key to post-Brexit success. As many as 600,000 UK businesses are unable to export due this payment crunch (12% of UK SMEs1). But, with an improved payment programme, the same amount of SMEs (12%) noted that they would target new growth overseas.

Stifling the economy

Crucially, this late payment crisis doesn’t live in isolation. SMEs that do not receive payments on time often struggle to meet their own obligations further down the supply chain. The research found that 16% of SMEs admit to having to delay their own payments to suppliers as a result of unstable income.

This crisis hurts staff too: nearly one in ten of those surveyed (9%) admitted that late payments have meant that they have been challenged to meet their own payroll obligations.

The findings also come against the backdrop of the introduction of new government obligations requiring large businesses to publicly report on their payment practice to suppliers, serving as a timely reminder of the need for further progress to be made in ensuring SMEs are able to receive prompt payment from customers.

Tony Duggan, Crossflow Payments CEO, commented on the research: “There is no doubt that UK SMEs are facing a working capital crisis at the worst possible time. We face a difficult economic future as we prepare to leave the EU, so we need to find solutions for our homegrown businesses to be well placed for Brexit.

“We need to look at these new financing solutions and a fresh approach to avoid subjugating UK enterprises and putting our economy at risk. Businesses of all sizes need to address this growing crisis and explore innovative approaches offered by the alternative finance and FinTech community to sit alongside more traditional providers.”

 All figures, unless otherwise stated, are from YouGov Plc.  Total sample size was 1031 SME senior decision makers. Fieldwork was undertaken between 10th and 19th April 2017. The survey was carried out online. The figures have been weighted and are representative of all GB businesses in terms of size (i.e. employees).

Methodology

1 Business Population Estimates for the UK and Regions 2016. Number of SMEs estimated at 5.5m in 2016. Working conducted by Instinctif Partners.

Crossflow Payments is a technology driven alternative finance platform delivering an innovative supply chain finance solution to large corporates and their suppliers. Its unique payment platform improves working capital for businesses whilst providing SMEs with instant access to finance against their outstanding invoices without the need for onerous personal guarantees.

Crossflow’s innovate solution squares the circle of payment terms and reductions in bank lending, all of which affects suppliers’ working capital. The Crossflow model leverages the credit rating of the large corporate customer to offer finance to the supplier at rates they cannot access elsewhere. Crucially, the corporation guarantees the payment, so there is no requirement for the suppliers to provide personal guarantees.

Crossflow Payments is backed by a range of sophisticated institutional investors providing significant firepower, enabling it to play a crucial role in helping UK businesses seize opportunities for growth. The business is a founding member of International Association of Alternative Finance and an effective industry ambassador setting voluntary standards on a range of issues including cyber security, fund segregation, payment authentication and staff vetting. https://www.crossflowpayments.co.uk