It seems like every week new data surfaces about the struggle U.K. small businesses endure when trying to get paid from their larger corporate customers. Small suppliers across the globe are struggling with cash flow as businesses turn to extending payment terms to extend their own capital. In the U.K., regulators have taken note of the issue and have gradually made efforts to ease the financial pain for SMEs.
Most recently, this culminated in the introduction of Duty to Report rules. The regulations came into effect last month, requiring large corporations to make their B2B payment practices public. Noncompliance is a criminal offense under the legislation, and businesses risk a fine if they don’t release their supplier payment information.
It’s too soon to tell whether the regulation will have any impact on supplier payment practices. But what is clear, according to the latest data, is that small businesses continue to trudge through inconsistent cash flow as a result of delayed invoice payments. New research from the U.K.’s Prompt Payment Directory, released last week, also uncovered the mental toll these B2B payment practices have on the nation’s entrepreneurs.
18 percent of small businesses are on the brink of bankruptcy or liquidation as a direct result of late payments.
42 percent of entrepreneurs said they have been forced to take out a loan to cover cash flow issues resulting from delayed payments on their invoices.
21 percent said they are struggling to pay the company’s mortgage or rent, while nearly a third said they have struggled pay business rates.
36 percent said they have sacrificed their own salaries to cover business costs, and more than a fifth said they are struggling to pay personal expenses like rent or their mortgages or have had to sell their homes. Further, 17 percent have had to remortgage their homes because of cash flow challenges in their professional lives.
More than a third of small business owners have had to delay payroll, making for an unpleasant situation for employees and demonstrating the knock-on effects of late supplier payments. A tenth said they have had to cut back on staff perks and events, while 29 percent said staff morale, recruitment and retention have been impacted by late payments and the consequent cash flow crunch.
Employee aren’t the only ones feeling the emotional effects of late payments, though. According to the Prompt Payment Directory’s report, small business owners are dealing with mental strain and pressure from these financial troubles.
34 percent of SME owners said they lose sleep because of cash flow issues, and, scarily, 7 percent said they have noticed they are losing their hair because of it.
29 percent of entrepreneurs have been affected by issues like depression, anxiety, stress or other mental struggles because they are getting paid late by their corporate customers.
In reaction to the findings, the Prompt Payment Directory has also highlighted some of the shortcomings of the recent Duty to Report regulations, warning that they may not be enough to relieve small business owners of these challenges — and that the implications of that are more than financial.
“The financial implications of late payments have been well reported over the 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,” reflected Prompt Payment Director Managing Director Hugh Gage in a statement.
“The government’s Duty to Report is a welcome step in tackling late payments, but it has its limitations,” Gage continued. “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. Also, the Duty to Report requires debtors to report on their own payment practices, which is counterintuitive, 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.”