More than 50% of Small UK Businesses Still Grappling with Unpaid Invoices from 2022

More than 50% of Small UK Businesses Still Grappling with Unpaid Invoices from 2022

Sustaining a consistent cash flow is crucial to every business, and disruptions to financial stability can pose substantial challenges for business owners and freelancers alike.

From ensuring timely salary disbursements to covering overheads and expenses, the presence of overdue invoices can significantly disrupt the smooth operation of small businesses.

In a recent survey conducted by NerdWallet, a thousand small and medium-sized enterprise (SME) proprietors, decision-makers, and freelancers in the United Kingdom were surveyed to understand their experiences with delayed payments and how this has impacted their businesses.

The findings revealed that a significant 55% of businesses still grapple with outstanding invoices from the preceding tax year (2022/23). The situation appears to be worsening, with nearly half (46%) of SMEs reporting more unpaid invoices at the close of the 2022/23 tax year compared to the prior year.

 

Connor Campbell, a business finance expert at NerdWallet, expressed concern, stating:

“At a time when many businesses across the UK are already facing an extremely turbulent period financially, the stress and uncertainty of unpaid invoices is an additional headache that no organisation will welcome.

Our survey found that overdue invoices can have substantial effects on SMEs, causing them to make cut-backs on expenditure, recruitment, and even staffing. We were most concerned to see that so many business owners were simply happy to sit back and wait for these late payments without chasing up invoices.

Of those that did pursue payment, very few opted to charge interest on repayments. Businesses in the UK are entitled to charge interest of up to 8% plus the Bank of England base rate for business-to-business transactions.

This is an area wherein many businesses could be losing out on compensation for the inconveniences caused by overdue invoices, so it’s important for business owners and freelancers to be aware of the legislation surrounding repayments.”

 

With regards to the duration of unpaid invoices, the majority had not gone unpaid for extended periods. About 35% of the invoices were overdue by less than a month, while slightly over a quarter (27%) were between one and three months late. Shockingly, 20% of business owners revealed that they had unpaid invoices from four to six months ago.

These delayed payments have huge implications for the operation of small businesses. NerdWallet inquired about the actions SMEs took in response to unpaid invoices, with 39% indicating that they had already implemented or were contemplating overhead reductions. These actions encompassed measures such as downsizing office spaces, transitioning to remote work, and curtailing team social expenditure.

Recruitment activities also experienced a significant setback, as 28% of SMEs had to suspend their hiring efforts due to unpaid invoices. Furthermore, one-fifth of business owners reported a freeze on planned employee salary increases.

Regrettably, the survey also unveiled that 22% of small businesses were either forced to or considering staff layoffs as a means to offset the burden of late payments.

The survey disclosed that, in most cases, business owners typically allowed a grace period of one week before taking remedial action for unpaid invoices.

As for the approaches to recovering payments, half of the respondents reported sending reminders on a weekly basis until invoices were settled, while 25% maintained a daily pursuit for payment. An additional 40% of SMEs supplemented their reminders with phone calls or written correspondence.

Interestingly, only 23% of respondents admitted to imposing interest charges in addition to the agreed-upon amounts for each reminder, and a mere 11% claimed debt-recovery expenses.

Surprisingly, 14% of businesses resorted to engaging a debt collection agency to retrieve payments, while 8% were left with no alternative but to write off the unpaid invoice entirely. Perhaps most startling of all, 22% of small business owners appeared content to wait passively without taking any action as their clients remained delinquent in payment.

 

Article by Business News Wales