Why are SME owners facing financial hardship?

posted by 5 years ago in News

29% of SME owners within the UK are currently dealing with depression, anxiety, high stress levels and further mental health issues – all caused by the worry of late payments.

Research commissioned by The Prompt Payment Directory (PPD) – a payment review site for businesses which draws down from Labour’s plans to concentrate on late payments following the new ‘Duty to Report’ scheme which was introduced during April 2017 by the UK government.

In fact, on top of the 29% who are currently suffering with mental health related issues, 21% cannot afford their mortgage or rent and 36% have given up their own salary just so their business can continue trading. 34% are frequently losing hours of sleep because of issues relating to cash flow, due to delayed payments from customers – 7% have revealed that they have lost hair because of the anxiety caused by the constant worrying.

The survey conducted was sent out to 1,000 SME decision makers who are all suffering from a restricted cash flow or dealing with late payments express the impact late payments have to a business.

According to research carried out by the Federation of Small Businesses, within the UK the ‘poor payment culture’ charges the UK economy £2.5 billion each year and, to add it has cost 50,000 businesses to close their doors. Because of the 30% of late payments effecting SMEs, 36% are using their own salary according to PPD’s research.

Late payments have also caused SMEs to sacrifice their employee’s benefits, in fact of those who took part in the survey, 10% have cut luxuries such as company phones, company cars, axing social gatherings like their Christmas party and even healthcare. 29% also believe that the morale between employees is down and their recruitment and retention has been disturbed.

And regardless of the many forfeits SME owners are making, 18% are still on the verge of becoming bankrupt or going into liquidation, forcing 42% to take out some form of business loan.

To reduce further late payments, 22% of SME decision makers have blocked their customers who take too long to pay. To add, 39% have added a late penalty fee, 24% have taken a CCJ while 35% have taken action via a debt collection agency or law firm.

Managing Director of The Prompt Payment Directory, Hugh Gage comments;

“The financial implications of late payments have been well reported over they years but our research delves deeper into the repercussions of poor cash flow to reveal how it affects and even destroys people’s health and lives.

“The government’s Duty to Report is a welcome step in tackling late payments but it has its limitations.

“Only large companies are required to report and only twice a year, but late payment isn’t simply an issue between small suppliers and large customers. According to recent Labour party figures, a hundred and sixty thousand small firms were forced to pay their own suppliers late because of delayed payments.

“Our research echoes these findings, with 26% of SME owners claiming that ate payments are either made by smaller suppliers or a mix of large and smaller organisations.

“Also, the Duty to Report requires debtors to report on their own payment practices which is counter intuitive, plus an absence of context behind the reasons for the late payment makes it harder for small businesses to reach decisions before entering contractual relationships.

“To end the UK’s poor payment culture, we need greater transparency throughout the entire supply chain and to encourage best practise which is why we’ve set up The Prompt Payment Directory, so all companies can be rates on their payment behaviour whether good or bad, and by those that are affected – their suppliers.”

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