Revealed: The devastating toll of late payment

Each year it costs sole traders £8bn Problem is cause of 1 in 5 insolvencies

NEW research has revealed in stark relief the shocking damage wreaked on small firms by customers that delay payment for goods and services.

A survey of the insolvency profession by trade body R3 revealed that late payment for goods or services was a primary or major cause of 23 per cent of insolvencies in the past 12 months, while the failure of a supplier or customer was the primary or major factor in 20 per cent of cases.

R3 president Andrew Tate said: ‘A business can have a great product and great staff, but if it doesn’t get paid for what it sells, or if it is overreliant on one supplier or customer, things can go wrong very quickly.’

The research shows the problem has worsened since 2014, when a previous survey found that late payment was a primary or major factor in 20 per cent of corporate insolvencies. According to the Insolvency Service there were 15,958 in the past 12 months. In May last year, Sajid Javid, who was then Business Secretary, announced Government plans for a small business commissioner to tackle late payments.

Tate said: ‘Unfortunately, Government promises and other initiatives don’t appear to have yet made any real impact.’

Previous research by R3 found that 6 per cent of UK businesses, equivalent to 113,000 firms, were creditors in an insolvency last year. More than half of insolvency practitioners identified construction as the sector with the worst record for late payment. Tate said: ‘The failure of one company can have a serious knock-on effect. Both late payment and the domino effect have been identified as leading causes of insolvency by the profession, so more needs to be done.’

Meanwhile, Britain’s 3.3million sole traders lose a total of £8.1billion a year from late, delayed or underpayment, research has found.

The study by mobile payments firm Paym found self-employed traders lose out an average of £2,472 each per year. Three in ten sole traders – about 990,000 businesses – have written off a payment in 2016, compared with 23 per cent of those surveyed in 2015.

Paym said the problem was worst in the South West, where 37 per cent of sole traders gave up on money they were owed by customers.

Simon McVicker, director of policy at IPSE, an association for the selfemployed, said: ‘Almost three-quarters of the disputes the self-employed have with clients are because of late payment. The Government must now get on with it and appoint a small business commissioner of stature. We need a strong figure who can spearhead better payment culture.’

The Department for Business, Energy and Industrial Strategy expects to appoint the small business commissioner in 2017.