Late Payments

Late payments: an economic problem but more worryingly, a mental health one

Late payments are costing UK SMEs an estimated £51.5bn and if that isn’t concerning enough, delayed payments are also affecting the mental health of business owners and freelancers. Athena Chrysanthou reports… 

Mental health has been more openly discussed in recent months as a social issue caused by demanding work places, stress and pressure. Research from Hitachi Capital UK surveyed 1,000 SME decision-makers on their experiences with late payments and how it has affected them.

The report outlines not only the economic difficulties for SMEs, but consequences on mental health for those within these businesses.

Robert Gordon, chief executive of Hitachi Capital, said: “When you consider the size of this community, over 5m SMEs and 2m freelance businesses, and their role in the country’s economy, the wider impact is significant.”

The first discussion point of the survey was late payments draining business liquidity. Three in 10 (31%) SMEs have experienced late payments costing at least £10,000 in the last 12 months, damaging business productivity.

On at least one occasion in the last 12 months, nearly three quarters of SMEs have reported to having a customer fail to pay during their agreed term period.

The report concluded on this: “There is an imbalance of power between clients and suppliers, often driven by larger players abusing their position, leading to a widespread late payment culture that is damaging SMEs.”

This is causing critical cash flow problems with over a quarter of SMEs experiencing a profit squeeze and 12% needing to defer staff pay. With these issues damaging the work flow of SMEs it also costs valuable time and reduces productivity, as found by the survey.

More than half (57%) of SMEs involved in the research spend at least an hour a day chasing late payments. In addition, 63% of SMEs have turned down contracts solely due to unfair payment terms however there is a variety of other reasons for this.

The report stated: “It is important to note that, whilst in some cases businesses may be operating at full capacity and will therefore have to turn down contracts for operational reasons, many SMEs are turning down work due to concerns around unfavourable payment terms.”

Risk and a lack of access to finance were cited in the report as reasons for slow growth for SMEs. Hitachi said it is important for SMEs to have access to financial support to achieve their ambitions either to invest of fulfil new contracts.

“As we look deeper into the reasons why SMEs are turning down contracts, our research suggests that many of these businesses are not getting the required levels of support that they need.”

Over a third of SMEs said they are reluctant to take out a loan to secure new work from, while an additional third of business are being refused finance from traditional lenders like banks. Late payments affect SMEs more deeply as “they have fewer resources at their disposal,” according to the survey.

Furthermore, SMEs do not have the same bargaining power as established organisations and in many cases will settle for unfair payment terms to avoid business loss.

Findings have also highlighted more than a third (35%) of SMEs did not realise they could claim interest form clients on late payments. The report noted: “The findings therefore point towards a need for greater education amongst businesses to the steps that they can both take to prevent late payments in the first instance and make a claim on any overdue fees from their clients.”

Mental Health Impact

A key finding of the report found 76% of freelancers believe that late payments have had a detrimental effect on their mental health.

Research from Mental Health First Aid (MHFA) England said mental health issues are responsible for 72m working days lost and costs up to £42bn each year.

The findings of this report outline key issues affecting SMEs and highlight staggering numbers in regards to liquidity, cash flow problems and time lost for business owners.

With mental health problems in our society not so much a taboo topic anymore, this report encourages discussion on the matter and calls for more collaboration and persistence to improve it.


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