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The Immorality of Not Paying Invoices

Right now, all over the UK, directors of small businesses are unable to pay their rent. They are losing sleep over their VAT bill, their corporation tax, or their employees’ salaries. Despite having worked hard to deliver great service to clients, they’re left with no cash at the end of the month.

Unpaid invoices are an on-going issue for small businesses, and these businesses can seldom afford to wait for their money.

Sometimes clients forget to pay invoices. That’s understandable, and easy to rectify. But the real pernicious problem is a culture of non-payment, and this is the real reason businesses are going to the wall.

Facts and Figures

In 2012, the Forum of Private Business and Graydon conducted a survey of 500 companies in the UK.

They found that 77 per cent of respondents said non-paying clients caused cash flow problems, which then forced them to pay their own suppliers late.

18 per cent said that the public sector was the main source of delayed payments.

In a 2014 government report, we discovered that 85 per cent of small businesses experienced payment over a two-year period. It says that the public sector is supposed to work to targets so that invoices are paid quickly. But what about the private companies that outsource to small businesses; what are the consequences for them?

Once an invoice is late, fees can be added. By the time this is even considered as an option, the small business will have written off its chance of working for that client again, because the process will usually sour the relationship between them.

Our anecdotal evidence suggests that finance departments are instructed, or strongly urged, to pay invoices as late as possible. And the smaller the company, the less important the invoice is. Some business owners spend the end of the month anxiously checking their bank account, knowing full well that their biggest invoices will go overdue – yet again. This is a frequent, ingrained practice.

Often, small businesses are left using expensive overdrafts to get through the month, if they can obtain any credit at all. Until the large business can be badgered into paying, they cannot pay their staff, and all the time they spend chasing payments drains time and resources from BAU.

Is it really ethical for large businesses to expect micro businesses to prop up their cash flow in this way? Isn’t it time the government forced a change in their behaviour?

A desperate need for change

Late payments are putting a quarter of UK SMEs at risk of insolvency. This isn’t just a matter of inconvenience for them; it can mean the difference between living and surviving, or between owning a home and going bankrupt.

This culture also creates a disastrous domino effect, where companies that usually pay quickly are forced to delay payments to their suppliers.

The Prompt Payment Code is a nice idea, but lacks teeth, and is of little consequence for the finance director who has already decided how long invoices will be ignored for.

Small businesses can improve their chances by getting tough on non-payers, but we shouldn’t be burdening them with this problem. It’s time large companies faced up to their responsibilities. They must be held to account for the misery that late payments cause.