COVID-19 Worsens The Impact Of Late Payments For Small Businesses
With the recent global pandemic taking its effects, the late payment crisis has made an all-time high. Small businesses, although most vulnerable and impacted during this current recession, have been subject to delayed or frozen payments from policymakers and big corporations who deem it not a priority for their operations.
The business community has taken a tremendous hit due to the COVID-19 outbreak. The majority of small businesses, 62% to be exact according to FSB’s latest study, aren’t guaranteed survival and are very much dependent on their pending income in which they have earned.
Although some small businesses have modified their payment terms to suit their clients and continue to uphold relations with them, this is an insignificant 10%. Therefore, the remainder businesses which are mostly found in the industries of Advertising and Marketing, Legal and Accounting and Wholesale are in fact victims of unregulated payments.
The government’s efforts to improve all procurement practises which were hugely accelerated following the Carillion’s collapse have been unsuccessful in putting a stop to all late payment activity between public and private sector supply chains (63%). Worryingly, government supply chains are inclusive in these statistics too.
What’s more, these larger corporations who have deemed themselves exempt from upfront and on-time payments have been able to continue operations with the support of those supply chains. This issue has not been a consequence of COVID-19; yes, it has dramatically worsened, but towards the end of last year, the sum of late payments for small businesses rose 80%, meaning debt was at an all-time high of £23.4 billion.
The government, as Baroness Bloomfield stated, are looking to put forward a raft of late payment reforms, even though this was a promise given in June 2019. The measures included are as stated below:
- Abiding by the Prompt Payment Code, the Small Business Commissioner is legally able to investigate late payment offenders and demand all payments to be made in a 30-day window.
- Big corporations who have been financially supported by the Bank of England during the current recession must sign a supplier charter that states payments to small firms are made within 30 days without exception.
- Big corporations must work in correlation with the BoE to shore-up supply chain finance, and use it to pay 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 a 30 day period.
- 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.
What Does This Mean for Small Businesses?
This current situation has put a further financial strain on small organisations who were already subject to late payments from clients. Now that the cash flow is drying up, we are only expecting small businesses to take an even worse turn due to corporations inoculating themselves from the impacts of COVID-19, and withholding or freezing payments at their partnered small businesses expense.
For all companies, cash is always going to be king. But for small businesses, they primarily rely on their client’s income to continue operating, so without it, some have begun to fold. With these new findings, we only hope that small businesses are no longer taken advantage of as free credit lines, and as a beneficial and respected member of a company’s supply chain.
How Athena Debt Recovery Can Help
Here at Athena Debt Recovery, alongside the government’s promised actions, we can assist you in recovering your small businesses late payments. Our hassle-free practises enable us to give you the best chances of reimbursement without issuing legal proceedings.
With our extensive experience and knowledge within debt recovery in the North West, we will assess your financial needs and position so that we can determine the most effective, high-value solution that adheres to the Late Payment of Commercial Debts (Interest) Act and Regulations where possible.
Once identified, we will deliver you with a cost-neutral collection that minimises the risk of you losing business. We are the key to your businesses late payment compensation. If you’d like further information on how our services work, visit our website or contact us today on 0161 836 6630.
We understand cash flow is prominent more than ever, and to try and end this recession, small firms that make up 99% of our business community must be paid in order to keep our economy functioning. With the government promising an end to this a year ago, further support will be your best chances at being reimbursed so that your business can continue operating.