Big businesses prey on SMEs in £45bn of late payments

Results from the latest Zurich SME Risk Index have revealed that larger firms are responsible for the majority of late payments made to small and medium sized enterprises. Small business owners have reported that firms bigger than their own are responsible for more than half (53%) of the total late payments they would typically receive, suggesting that bigger firms are taking advantage of SMEs’ reliance on retaining their custom.

The findings come soon before the appointment of the UK’s first ever government pledged Small Business Commissioner, whose responsibility will be to support small businesses in resolving payments dispute from Autumn 2017.

The survey of more than 1,000 SMEs reveals the severity of the problem, as almost half (45%) that are subject to late payments are forced to wait up to three months to get paid, while a considerable number (14%) are typically forced to wait up to six months for payment. Almost two thirds of SMEs (64%) experience typical delays of more than one month on payments which are already more than 30 days overdue.

This may explain why almost three quarters (73%) of small business owners think the appointment of a ‘national champion’ for small businesses is a good initiative. Yet, half (50%) of small business owners say the government should be doing more to help SMEs, and more than three quarters (78%) say they were not aware of the UK Government’s recent initiative to support British SMEs.

The appointment of the Small Business Commissioner will be a welcome reprieve for SMEs, who are owed on average an estimated £16,250.

Paul Tombs, Head of SME Proposition at Zurich, comments:

“For small companies, working with larger organisations and strong brands is an important part of building and running a successful business. But, it is a two way street and large organisations are simply taking too long to pay small suppliers, which are dependent on reliable, regular invoicing to cover their own costs. It is not sustainable.”

“The introduction of a champion for small businesses is a great initiative, but the new Commissioner must be more than just a figurehead. Large businesses should not be allowed to take advantage of their position in the food chain and remain unaccountable over their responsibility to pay their bills on time.”

Estimates published by the UK Government suggest that 50,000 business closures could be avoided every year, if payments were made promptly. Almost two thirds (65%) of small business owners are seeing this pain in the market, stating that late payments are a leading factor forcing SMEs to close down.

Nearly two in five (39%) small business owners have confirmed that late payments have had a significant impact on their own business’ cash flow, while almost a quarter (24%) said that late payments had caused their business to go into its overdraft.

You can find out more about our SME products and services in our interactive guide, or for more information, speak to your local Zurich contact.

Total number of British SMEs (UK excl. Northern Ireland) is approximately 5,490,000 (November 2016), according to UK Government statistics. The mean average of late payments owed to SMEs is £16,250. The proportion of the UK SMEs that have reported late payments is 52%, which takes into account the high proportion of sole traders in the UK (76%, according to figures from the Federation of Small Business) of which just 30% are owed late payments. A simple calculation assumes that 52% of the total 5,490,000 SMEs in the UK equals 2,741,960, multiplied by the £16,250 that are owed late payments means that UK SMEs are owed a total of £44,556,850,000 (£44.6bn).