UK businesses face £11bn annual loss due to late payments

Delayed payments are costing UK businesses approximately £11bn annually, with individual companies losing an average of £45m annually due to disruptions in their supply chains, a report from Basware has revealed.

This finding aligns with recent comments from UK Prime Minister Keir Starmer, who has called for action against persistent late payment practices, noting that half of all supplier invoices are paid late, resulting in the closure of 38 businesses daily.

The Basware study examined 'on-time payment rates', which indicate the percentage of supplier invoices settled by or before their due dates.

The report identified two main causes of late payments: inefficient processes, such as reliance on paper invoicing and manual approval systems, and cash flow issues that lead businesses to intentionally delay payments to manage their working capital.

These factors not only create financial strain within supply chains but also contribute to inflationary pressures and increase the likelihood of supplier insolvencies.

As 76% of CFOs view inflation as their primary business concern for 2024, the issue of late payments has become a significant factor in the financial challenges facing companies.

In response, the newly introduced 'Small Business Plan' stipulates that businesses must pay suppliers within 30 days of receiving an invoice, unless other arrangements are made.

The legislation will also set maximum payment terms, starting at 60 days and eventually reducing to 45 days, with enforcement measures including the ability for the small business commissioner to conduct spot checks to ensure compliance.

The Basware report also points out the ethical implications of late payments, which can have a cascading effect throughout the supply chain.

It suggests that the implementation of technology can enhance payment practices, with on-time payment rates increasing to 85% through the use of invoice automation.

This shift can reduce processing times from an average of 10.1 days to less than one day and decrease costs from $16 per manual invoice to approximately $2.36.

Basware CFO Martti Nurminen said: “Late payments is a £11bn problem in the UK alone, that is fuelling a financial health crisis.

“Our research has found that half of suppliers are paid late, so the UK government is right to address this problem, and bring about greater efficiency and healthier supply chains.

“It’s not just a numbers game. When buyers delay payments, they are directly impacting the livelihoods of their suppliers, many of whom are smaller businesses that depend on timely cash flow to survive.

Story Continues

“Businesses need to recognize that ensuring on-time payments is both a financial necessity and moral responsibility. The technology exists to solve the late payments crisis. It's time for businesses of all sizes to step up and make on-time payments a priority.

“Timely payments are not solely a matter of compliance or efficiency but are a reflection of a company’s commitment to its suppliers and the broader economy.

“As companies adopt automation, they can better balance the pressures of managing cash flow while upholding their ethical responsibility to pay suppliers promptly.”

"UK businesses face £11bn annual loss due to late payments" was originally created and published by The Accountant, a GlobalData owned brand.

The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.

View Comments