What has the British government done about late payment culture?
The strongest piece of legislation a small business can use is the Late Payment of Commercial Debts (Interest) Act, last updated in 2018. This allows small businesses to claim a fixed sum and interest on payments which have been left outstanding.
The government introduced tough new rules on prompt payments in September 2019, but the effect of late payments continues to put a strain on the mental health of British small business owners. Why are they not working and how do SME owners continue to suffer?
What is the financial cost of the British late payment culture?
In research published in January 2020, Pay.uk found that small businesses face up to £23 billion in overall late payments. This number rose £13 billion from the previous year. Many people have no idea how to get back what is rightfully theirs.
And this late payment culture has affected every sector:
Artists working with large venues to provide art and music
Screenwriters and script developers
Small boutiques having to call in their outstanding invoices and bring in new policies for paying promptly
Stoppages in cash flow cause serious problems for SME owners, including stress, mental health issues, lack of ability to invest, diminishing cash reserves, and having to lay off staff. This isn’t just a financial cost, but a human cost too. But how damaging is it?
A survey carried out by Easle showed that invoices that are written off (i.e. considered uncollectible) caused on average £2,000 worth of damage every year.
Think about that – £2,000 of debt that an owner cannot collect due to the failing of the legislation and the ability to enforce the bully tactics of big enterprises to pay their debts. This environment hurts and demoralizes small business to a grave extent.