Small businesses spend the equivalent of 331 days a year chasing late payments, new Hiscox research finds. Here are five practical steps to protect your cash flow and spend less time waiting to get paid.
Late payments are one of the most persistent and damaging challenges small businesses face, and new research from the UK puts hard numbers on just how much time and money the problem is actually costing.
Specialist insurer Hiscox surveyed 1,000 small business owners and sole traders in the UK for its inaugural Late Payments Report, finding that almost a quarter of all payments to small businesses, 23 per cent, arrive late. On average, those late payments take three weeks past the due date to arrive. With businesses chasing an average of 14 late invoices each year, that adds up to 331 days of cumulative waiting time annually, according to Hiscox.
The average small business in the UK is owed £12,357 in late payments every year, the research found. Across the 5.7 million small businesses in the UK, outstanding payments could total £70.4 billion, according to Hiscox.
While the figures are from the UK, the late payment challenge is equally familiar to Australian small business owners. The Australian Small Business and Family Enterprise Ombudsman, which marked its tenth anniversary this week, has consistently identified late payments as one of the most significant pressures on small business cash flow in Australia, and has directly assisted businesses in recovering overdue amounts without costly legal action.
For more than one in six small businesses surveyed by Hiscox, it takes more than a month past the due date to receive payment. In some cases, according to the research, invoices are never paid at all.
One anonymous business owner told Hiscox the financial and emotional toll of non-payment is significant. “Working for yourself is a joy. It’s the best. But when people don’t pay up, it not only throws your finances into issues, but it also affects your confidence and piles on stress. It means you always need money set aside for worst-case scenarios,” the business owner said.
Nick Thornhill, Direct and Partnerships Director at Hiscox, said the consequences of late payments extend well beyond inconvenience. “Cash flow is the lifeblood of any business. Yet late payments remain one of the biggest challenges for entrepreneurs and small businesses. Knock on effects of late payments can disrupt cash flow, impact payroll, delay investment, and seriously compromise a business,” Thornhill said.
The problem worsens as businesses grow, according to the Hiscox research. Among sole traders, 19 per cent of payments arrive late. For businesses with between 10 and 49 employees, that figure rises to 25 per cent.
Sector also plays a role. IT and telecoms businesses chase the highest average number of late payments at 18 per year, according to Hiscox, followed by finance at 17, healthcare at 16, retail catering and leisure at 15, and legal at 14.
When it comes to recovering late payments, the most common tactics among small business owners surveyed by Hiscox are following up with a phone call, cited by 37 per cent, building strong client relationships at 36 per cent, and being very clear about payment terms upfront at 36 per cent.
Five steps to protect your cash flow
Thornhill outlines five practical steps small business owners can take to reduce the risk and impact of late payments, drawn from Hiscox’s research and experience working with small businesses.
The first is to invoice immediately. Sending an invoice as soon as a job is complete removes any ambiguity about when payment is expected and reduces the window for delay.
The second is to keep early communication friendly. Most late payments are not deliberate, and a prompt, polite reminder is often enough to resolve the situation before it escalates. If late payments from the same client keep recurring, address the pattern directly.
The third is to break large projects into staged payments. Asking for deposits or milestone payments on bigger jobs means businesses are not left waiting for a single large sum at the end of a project.
The fourth is to have a clear policy for chronic late payers. Deciding in advance what the response will be, whether that is charging interest, pausing work until payment clears or ending the relationship, removes the need to make that decision under pressure.
The fifth is to consider how insurance fits into the broader picture. While insurance cannot prevent late payments, Thornhill notes it can help protect other areas of the business and provide practical support when cash flow comes under pressure from circumstances outside a business owner’s control.
“Late payments might be a recurring character in the small business world, but they don’t have to be a thorn in your side,” Thornhill said. “With some clear rules, you can keep your cash flowing and your focus where it belongs, growing your business.”
Read Hiscox’s full Late Payments Report for more insights and practical advice.
Research was conducted by Hiscox via Censuswide across 1,000 UK small business owners and sole traders. Figures relate to the UK market.
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