Delayed settlement of customer invoices can be a challenge for any company, however the problem is often particularly acute for SMEs.
Many smaller businesses do not hold large cash reserves and therefore have less leverage to negotiate with compared to bigger firms who are better placed to dictate terms, without worrying about affecting long-term relationships.
For the wholesale and distribution industry, these conditions can be especially problematic. The sector is noted for being a key link in the wider supply chain. Traders are often reliant on payments to reimburse their own suppliers and keep vital goods available to others.
Late payments and long payments terms
The cause of many SME cash flow problems are either late payment or onerous long payment terms.
Long payment terms are typically considered to be anything more than 30 days. Recently, many industries have seen a trend toward 60 or 90-day conditions. These tend to be favourited by bigger organisations and are not sympathetic to the cash flow challenges facing small and medium sized operations.
In comparison, late payments are those which exceed agreed trading parameters. Many companies have also noted an increase here over the last decade. In the wholesale and distribution sector, a third of businesses challenged by this issue estimate they are owed over £40,000 in late payments.
For many, these problems create a difficult choice: accept extended payment terms which could be difficult to manage, or turn down a job and don’t get paid at all. Even trying to negotiate better terms can be a challenge because if you do not accommodate a big company’s whims, a competitor may.
How much money do you estimate is owed to you in late payments?
| All SMEs* | Wholesale and distribution* | |
|---|---|---|
| Less than £20,000 | 29% | 27.3% |
| Between £21,000 and £40,000 | 34.8% | 39.4% |
| More than £40,000 | 31.9% | 33.3% |
*Of all businesses that have a problem with late payments
Wholesale and distribution industry
Close Brothers research found that the transport & haulage, print & packaging and wholesale industries find late payments around 10% more problematic than the average SME in the UK. Given that these sectors must continually reinvest to provide products for their own clients, it is perhaps unsurprising that they are most reliant on efficient customer remittance.
Wholesale and distribution companies cited similar concerns about late payments. Businesses from these sectors said that they make cash flow hard to manage, that they force them to spend time chasing money and, concerningly, that they significantly impact their ability to trade.
Are late payments a problem for your business?
| All SMEs* | Wholesale and distribution* | |
|---|---|---|
| Yes | 42.8% | 52.3% |
| No | 57.2% | 47.7% |
*Of all businesses that have a problem with late payments
Invoice finance
If your business is managing extended periods without payments, you may find invoice finance helpful. A factoring or discounting facility gives companies access to cash tied up in their unpaid customer invoices as soon as they are raised.
This type of funding enables businesses to have more control of their cash flow, providing the reliability and security they need to thrive.
*These statistics have been updated and are corrected as of August 2020.
