Nearly half a million small firms could go under this year due to late invoice payments, Federation of Small Businesses warns
- The FSB said the problem of late payments had been worsened by the pandemic
- It also found that 78% of small firms had seen their costs rise in the last quarter
- Raising small firms rates relief ceiling to £25,000 is suggested by the FSB
One of Britain’s leading business organisations has warned that around 440,000 companies could go bust this year solely because they are not receiving invoice payments on time.
The problem of late payments had been worsened by the coronavirus pandemic and was ‘the issue that keeps thousands of entrepreneurs up at night,’ the Federation of Small Businesses said.
Three in ten firms surveyed by the group for its quarterly small business index admitted this problem had grown over the last three months, while only 6 per cent said new payment terms had been agreed during this period.
Major issue: Three in ten firms surveyed by the FSB for its quarterly Small Business Index admitted that the problem of late payments had grown over the last three months
The index additionally found that 78 per cent of small companies had seen their costs increase – the highest figure in seven years – with outgoings, fuel and utilities being the three main drivers of this growth.
At the same time, around three quarters of British firms which sell their goods and services in the European Union registered a decrease or a flatlining in international sales over the quarter and 38 per cent reported a fall in exports.
These findings come as EU firms selling goods to Britain now have to deal with new rules requiring them to display complete customs declarations and prove their products are tariff-free under rules-of-origin requirements.
Research last year by the FSB found that only a quarter of small businesses affected by these changes were wholly prepared ahead of the new regulations, which have led to concerns about delays at ports and supply chain disruption.
Further rules and checks, such as export certificates for animal food products, fruits and vegetables will come into force later this year.
The FSB said that without addressing the multiplying costs of administration for companies trading overseas, as well as higher inflation and late payments, the viability of many more firms is severely threatened.
Rising costs: The FSB’s Small Business Index found that 78 per cent of small companies had seen their costs increase over the last quarter – the highest figure in seven years
‘The small business community diminished in size over the past year and, unless action is taken now to tackle the challenges it faces, history is set to repeat itself,’ urged Mike Cherry, the FSB’s national chairman.
Cherry added that the new financial year beginning in April would see businesses beset with rises in the national living wage, dividend taxes, business rates and national insurance contributions.
‘On top of that,’ he remarked, ‘operating costs are surging – many will soon be trying to strike energy deals without the clout of big corporates or the protections afforded to consumers. Small business confidence dropped in every quarter of 2021.’
Cherry recommended the UK Government boost the small businesses rates relief ceiling to £25,000, raising the Employment Allowance and introducing a more enhanced version of the SME Brexit Support Fund to help benefit the sector.
The Government has yet to make an announcement on its response to a consultation on new powers for the Small Business Commissioner, an office set up to tackle late and unfavourable payment practices in the private sector.
The power to order payments and levy fines were among some of the issues raised.
Changes were also made last year to the prompt payment code, a voluntary scheme in which businesses pledge to make payments on time and to treat suppliers fairly. Companies who sign up to the scheme have a duty to pay small businesses within 30 days.
A spokesman for the Government said it was ‘making significant reforms to help small businesses get paid on time, including halving the payment period in the prompt payment code and consulting on fines and other new powers for the Small Business Commissioner.
‘There is plenty of support available to ensure small businesses are well-positioned to comply with UK border processes, including one-to-one advice through the Export Support Service.’