But it was also the reason a lot of businesses failed, and it was the focus for a lot of action, particularly from the Federation of Small Businesses (FSB). But now the world has been consumed by a pandemic, and everyone’s wallets are feeling the strain. So as the restrictions start to lift, we wanted to find out, how Covid-19 has impacted the late-payment pandemic.
When it comes to money, numbers speak louder than words, so first we want to share with you the figures around late payments during Covid-19, as found by the FSB. According to their research:
- 62% of all small businesses have experienced either an increase in late payments and/or had payments frozen completely.
- 10% of all small businesses have experienced a lengthening of payment terms from customers.
- 71% of small wholesale firms, 62% of small legal and accounting firms, and 62% of small advertising and market research firms have experienced an increase in late payments, or had payments frozen completely.
So overall, late payments have increased significantly throughout the last year, with more and more businesses feeling the pressure from both their customers and their suppliers.
Why are Late Payments Getting Worse?
Honestly, these findings aren’t really that surprising to us – cashflow is king, and when the income dips as a result of the pandemic, businesses naturally scramble to keep cash within their own business as much as possible. But this creates a chain reaction, and means multiple businesses start to struggle with cashflow, and if it continues for too long then it could (and has) lead businesses all along the chain to close their doors for good. But failing to pay invoices doesn’t just stop businesses from being able to survive the current crisis, it also hampers their ability to recover post-crisis. At this stage of the pandemic that is the more pressing worry, since continued late payments could cause potentially enduring damage to supply chains all across the country.
What About Government Support?
But, haven’t the government been offering support to businesses who are struggling? While technically the answer is yes, the reality is a bit more complicated. While there has been support to cover wages for employees on furlough, and grants offered to some businesses to keep them afloat, there were a huge number of businesses that slipped through the cracks of government support. The biggest group was the small limited companies – owned and run by 1 or 2 directors, and not qualifying for any of the government support schemes. These companies have been left to struggle through the pandemic on their own, and the result has been a lot of late payments, non-payments and businesses closing permanently. While it might sound like a small thing, this group represents a staggering number of businesses in the UK, and along with putting over 7,600,000 jobs at risk, the lack of support was the start of the chain reaction of late payments for thousands of businesses.
So, what can you do? At the moment we are still preaching some level of leniency with clients, particularly those who have been great at paying in the past, but whom have obviously been hit hard by the pandemic. Compassion is one of the greatest skills you can have as a business owner and showing some when it comes to late payments right now could be what saves some relationships for the future. But equally, you need to be able to pay your own bills, so you can’t just waive debts completely. Instead, we recommend using a debt collection company, and potentially trying to come up with a happy medium for both you and the customer – such as a payment plan. If you would like some help with collecting debts during this difficult time, just get in touch with the team to book your free consultation.