440,000 businesses at risk due to late payments

4 January 2022

Increased late payments and added costs are threatening the viability of small businesses, it has been claimed.

A survey of 1,200 business owners by the Federation of Small Businesses (FSB) found 440,000 small firms were at risk of closing due to late payments.

It found almost one in three (30%) businesses saw late payments increase over the last three months of 2021, with a further 8% experiencing other forms of poor payment practice. Around one in 10 (8%) said late payments were threatening the viability of their business.

The FSB said late payment was combining with rising costs and new Brexit border checks that came into force on 1 January to threaten small firms.

FSB national chairman Mike Cherry said: “After another frustrating festive season, small firms are facing flashpoint after flashpoint.

"Today, it’s a fresh wave of admin for importers and exporters – in three months’ time it will be a hike to the jobs tax that is national insurance contributions, a rise in dividend taxation, business rates bills and an increase in the national living wage. 

“On top of that, operating costs are surging – many will soon be trying to strike energy deals without the clout of big corporates or the protections afforded to consumers. 

“Late payment was destroying thousands of small businesses even before the pandemic hit – the pandemic has made matters worse.” 

The FSB said 400,000 small businesses were forced to shut down throughout the pandemic.  

A government spokesperson told Supply Management: “The government is making significant reforms to help small businesses get paid on time, including halving the payment period in the Prompt Payment Code and consulting on fines and other new powers for the small business commissioner.

“There is plenty of support available to ensure small businesses are well positioned to comply with UK border processes, including one-to-one advice through the Export Support Service.”

The survey also found costs at a seven-year high, with 78% of businesses reporting rising costs. 

Input costs were the primary driver, cited by half (49%) of respondents, followed by fuel (46%) and utilities (45%). 

Research by the Institute of Directors previously found three in 10 UK firms were “not at all prepared” for new customs arrangements.

Cherry continued: “Small firms that do business internationally are usually among our most profitable and innovative. That’s why it’s so hard to watch so many becoming increasingly weighed down by bureaucracy. 

“The government should learn lessons from the botched roll-out of the SME Brexit Support Fund and launch a new fund with similar aims but more sensible eligibility criteria, reasonable application deadlines and a genuinely international focus.”  

A CBI spokesperson described UK business readiness for the customs checks changes as “a mixed picture”.

They told SM: “Most larger businesses have already embedded practices around managing declarations or ensuring their paperwork is correct by now. However, SME readiness is lower, with other supply chain challenges – from logistics prices to winter impacts – also hitting at the same time.

“The main concern will be around impacts on food supply chains which remain around paperwork, high costs, food perishing, and vet availability. To tackle this, the UK Government must prioritise flow over compliance in the short-term to reduce the pressure on supply chains.”

Shane Brennan, chief executive of the Cold Chain Federation, which represents the UK's chilled and frozen goods supply chain, told SM: “The erection of a trade barrier between the UK and the EU makes all trade between the two markets slower, less flexible and more expensive for all parties. 

“It can’t but cause major restructuring of supply chains, as businesses rethink all aspects of what they buy and how they buy it. 

“The impact on people bringing goods to the UK starts now – they can expect a large customs and food inspection cost and they will find their haulage options constrained as many EU based hauliers extract themselves from serving the UK market. The changes afoot are unavoidable.”

Brennan recommended UK firms focus on restructuring supply chains and said it might be appropriate for firms to consider “relocating production and storage to the UK, and in others moving operations out”.

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