The Impact of Late Payments on Small Businesses Heightened by COVID-19
The late payment crisis has reached an all-time high amidst the global coronavirus pandemic. Small businesses, who are already vulnerable from the impact of this current recession, are now battling to stay afloat due to policymakers and larger corporations delaying or freezing payments; deeming their services not a priority to their larger operations during these uncertain times.
The COVID-19 outbreak is having a tremendous impact on the business community. According to FSB’s latest study, 62% of small businesses are not guaranteed to survive this period. These businesses’ dependency on their pending income has, therefore, significantly increased.
In order to survive the implications of coronavirus, a proportion of small businesses have modified their payment terms to suit their clients and to endeavour to uphold relations. Unfortunately, this is only an insignificant 10% of small businesses. The remaining 90% are falling victims of unregulated payments, with the majority of companies within the Advertising and Marketing, Legal and Accounting and Wholesale industries.
Following the collapse of Carillion, the construction giant, the Government accelerated its efforts to improve all procurement practises. However, this was largely unsuccessful in stopping all late payment activity between public and private sector supply chains. 63% of payments remained frozen, and government supply chains were alarmingly included within these statistics.
What’s even more frustrating, the larger corporations who are deeming themselves exempt from upfront and on-time payments, are continuing to operate with the support of these supply chains. Despite COVID-19 augmenting this issue, the sum of late payments to small businesses rose 80% at the end of last year. This increase took the total debt to a record high of £23.4 billion.
Baroness Bloomfield stated that the government is now looking to draw up a draft of late payment reforms; however, this has previously been promised in June 2019. The measures that are included are as follows:
- The Small Business Commissioner, abiding by the Prompt Payment Code, is legally able to investigate late payment offenders and demand all payments are made within a 30-day window.
- Large corporations who have been financially supported by the Bank of England (BoE), during the current recession, must sign a supplier charter. This document states that payments to small firms are made within 30 days, no exceptions.
- Big corporations must work in correlation with the BoE to shore-up supply chain finance, paying small businesses urgently.
- Generate a centralised relief pot for small organisations through government supply chains that have witnessed payments frozen, and for the foreseeable, work to ensure 95% of public sector invoices are paid within 30 days.
- If organisations comply with the Prompt Payment Code or establish Project Bank Accounts, work is only to be handed to Tier 1 contractors.
- Audit Committees are forced to audit payment practises within annual reports by a dedicated non-executive director. Or failing that, the Financial Reporting Council guidance is amended.
So, what does this mean for small businesses?
The current situation, with added pressures from COVID-19, has further worsened the financial strain on small organisations who were already subject to late payments from clients. We are expecting the situation to deteriorate for smaller businesses as cash flows begin to dry up. This is due to larger corporations further withholding or freezing payments to protect themselves from the implications of COVID-19. Unfortunately, this is all at the expense of their small businesses partners.
For smaller businesses who rely heavily on their client’s income to continue their operations, without it are beginning to fold. With these new findings and statistics, we can only hope that small organisations are no longer taken advantage of as free credit lines, and are treated as respected members in a company’s supply chain.
How Athena Debt Recovery Can Help
At Athena Debt Recovery, in addition to the government’s promised actions, we can assist your business recover your late payments. Our hassle-free practises enable us to give you the best chance of obtaining a reimbursement without issuing any legal proceedings.
With our extensive experience and knowledge within debt recovery in the North West, we will assess your financial needs and position. By adhering to the Late Payment of Commercial Debts (Interest) Act and Regulations where possible, we can determine the most effective, high-value solution.
Once all the facts have been established, we will deliver you with a cost-neutral collection that minimises the risk of you losing business. Here at Athena Debt Recovery, we are the key to your businesses’ late payment compensation. For more information on our services, visit our website or call us today on 0161 836 6630.
We understand cash flow is crucial now more than ever. And, to end this recession, small firms must receive the payments they are duly owed. With businesses representing 999% of our business community, more needs to be done to keep our economy afloat. With the government promising to eradicate late payments a year ago, further support is required to increase your business’ chance at being reimbursed and to continue operating.