A Quarter of UK Firms Lose Nearly £5,000 Each Year Chasing Late Payments

The British government recently announced plans to support Small and Medium Sized business (SMEs) in tackling late payments - claiming its initiative would give the economy a £2.5 billion boost. But how much does late payment actually cost the average business?

Moneyzine.com has investigated using the most up-to-date data. Our findings show that late payments have a surprisingly large effect on businesses’ bottom lines.

How much do late payments cost?

Recent data revealed that over a quarter (27.6%) of UK companies spend 7 or more hours each week chasing late payments, with over 12% losing more than 10 hours. When we translate this into concrete financial data, the extent of the problem starts to become clearer.

The average wage for someone working in accounts receivable is £25,500 - or roughly £13.08 per hour. More than a quarter of companies therefore spend at least £91.56 each week on wages that are dedicated to chasing late payments. That works out at £4,761.12 per year. For the 8.8% of companies that spend 13 or more hours each week, the cost jumps to at least £170.04 per week - or £8,842.08 each year.

Given that the average UK SME nets roughly £12,000 profit each year, the cost of chasing payments equates to more than a third of a quarter of companies’ annual profits.

Which industries struggle most?

While the majority of companies experience late payments, the extent of the difficulties faced varies greatly between industries.

Marketing and advertising firms fare the worst, receiving all of their payments late - with 60% paid 15 or more days after they were due. As a result, 40% of companies in these industries report spending 7 or more hours chasing invoices.

Construction businesses also receive all of their payments late, though just 36% end up being more than 15 days overdue - and only 30% say they spend 7 or more hours per week on accounts receivable.

These are followed by financial services firms, 85% of whom receive all payments late - and 31% of whom spend 7 or more hours chasing invoices; and IT firms, who receive 81% of payments late and 31% of whom also spend 7 or more hours chasing invoices.

However, firms that do receive payments on time still have to spend a lot of time chasing invoices. The education industry is the most likely to be paid on time, with 20% of firms saying their payments are paid ahead of schedule - and 60% are paid within a single week. But 40% of these companies still end up spending 7 or more hours each week chasing invoices.

The impact goes beyond the bottom line

While these figures are startling, they don’t fully capture the impact of late payments. Lost profit is one thing; the impact of interrupted cash flow and opportunity costs are another.

In 2022, Small and Medium-sized Enterprises (SMEs) were owed on average an estimated £22,000 in late payments. That is money that could be reinvested to grow the company, or simply used to cover other bills or debts - many of which will be occurring interest while the company struggles to pay them off.

These factors are best captured by a simple statistic: 50,000 UK SMEs face bankruptcy every year due to late payments. These are not companies that would go under otherwise; they are simply unable to continue operating because their invoices are not paid on time.

“This research sheds clearer light on the impact of late payments. Far from a matter for financial controllers to worry about, this is an issue of existential significance for a huge number of organisations.”

Jonathan Merry, business expert at Moneyzine.co.uk