1 in 10 invoices paid late, impacting Small & Medium businesses to the tune of $3 trillion globally
08 December 2017 - 3:32AM
New Sage report found that In the United
States:
An economic report published today by Sage reveals the detrimental
impacts of late payments on Small & Medium Businesses,
currently equating to $3 trillion globally. With 1 in 10 invoices
failing to be paid on time, the study reports up to 10% of payments
are either never paid or paid so late that businesses are forced to
write them off as bad debt. Undertaken by Plum Consulting, the
research analysed responses from over 3,000 business builders to
look at the effects of late payments on Small & Medium
businesses. It highlights significant implications for our
entrepreneurs and their ability to operate, plan and grow.
‘The Domino Effect: The Impact of Late Payments’ highlights that
almost 40% of Small & Medium Businesses experience direct
negative impacts from late payments. As a consequence of late
payments, 16% in the US say they will struggle to pay bonuses
around the festive period, and nearly 25% expect an impact on staff
pay.
Other common impacts in the US include delaying investment into
the company (nearly 25%) and over 18% said it impedes the ability
to pay its own suppliers, which in turn, creates a vicious
cycle.
However, when looking at the reasons why Small & Medium
businesses don’t chase payments, the overwhelming response of those
surveyed is to protect client relationships, indicating that there
is a stigma around chasing payments. Over 30% noted that they
weren’t “chasing” the payment because they felt it would negatively
impact client relationships, and over 40% explained that they had
no real reason for not chasing the late payment. Similarly, over
30% of those making late payments couldn’t pinpoint a reason for
why that payment was late.
“Late payments create unnecessary financial stress, especially
for Small & Medium Businesses that depend on these funds to
maintain day-to-day operations, pay staff and suppliers, and
support future growth,” said Nancy Harris, Executive Vice President
and Managing Director of Sage North America. “Our survey reveals
that 13% of invoice payments to these organizations in the United
States are paid late, and a proportion of those invoices - 10% -
are written off as bad debt. With most respondents citing not
wanting to chase payments to protect the client relationship
coupled with a high percentage of those actually making the
payments not able to explain why the payment was late in the first
place, is a clear indicator of the proactive role businesses must
take to ensure invoices are paid on time. It is clear the stigma
around late payments and keeping a healthy client relationship
needs to change, so small businesses can get on with doing what
they love – running their business – rather than worrying about
when the money will come in.”
The SME sector accounts for a sizeable portion of the US
economy. Small & Medium Businesses employ 48% of the country's
workforce, and they contribute 53% of total gross value add (GVA)
per year. GVA measures the contribution to an economy of an
individual producer, industry, sector or region. A significant
proportion of companies with which SMEs have commercial
relationship make their payments late in the US. In total, 11% of
all payments to SMEs are made late; these payments represent 13% of
total invoices.
Furthermore, 10% of invoices are written off as bad debt.
Medium-sized companies in the US see the highest proportion of
invoices for which payment is overdue become bad debt, with micro
firms seeing the lowest proportion of such invoices. More than a
third of SMEs currently experience or expect to experience all
types of impact regarding late payments, with over 30% expecting
impacts in staff pay (both periodic and discretionary).
Global snapshot: Late Payments Landscape – The Domino
Effect
Across the 11 countries analysed, Small & Medium Businesses
account for at least 96% of total enterprise. ‘Protecting client
relationships’ is the most cited reason for not chasing late
payments – leading Sage to call for a fundamental shift in culture
for Small and Medium businesses to be proud to chase for work
undertaken.
Country |
Proportion of invoices that are paid late (%) |
Average number of days per year spent by SMEs chasing up
late payments |
Top barrier to chase late payments for SMEs in each
country |
Proportion of invoices that become bad debt
(%) |
UK |
18 |
15 |
Protect client relationship (40%) |
9 |
South Africa |
15 |
20 |
Protect client relationship (40%) |
9 |
France |
11 |
6 |
Protect client relationship (21%) |
8 |
Ireland |
15 |
7 |
Protect client relationship (43%) |
8 |
Australia |
9 |
5 |
Protect client relationship (29%) |
7 |
Brazil |
7 |
14 |
Protect client relationship (35%) |
7 |
Canada |
10 |
7 |
Protect client relationship (31%) |
8 |
Singapore |
18 |
15 |
Protect client relationship (41%) |
9 |
Spain |
12 |
18 |
Protect client relationship (37%) |
8 |
United States |
13 |
15 |
Protect client relationship (32%) |
10 |
Germany |
9 |
5 |
Protect client relationship (31%) |
8 |
Methodology
This research was conducted by FTI Consulting’s Strategy
Consulting & Research team from July 4 – July 21, 2017 and
included respondents across 11 countries who are either fully
involved in or knowledgeable of the decision making in their
organisation.
About SageSage (FTSE:SGE) is the global market
leader for technology that helps businesses of all sizes manage
everything from money to people – whether they’re a start-up,
scale-up or enterprise. We do this through Sage Business Cloud -
the one and only business management solution that customers will
ever need, comprising Accounting, Financials, Enterprise
Management, People & Payroll and Payments & Banking.
Our mission is to free business builders from the burden of
admin, so they can spend more time doing what they love – and we do
that every day for three million customers across 23 countries,
through our 13000 colleagues and a network of accountants and
partners. We are committed to doing business the right way, and
giving back to our communities through Sage Foundation.
Find out more at www.sage.com/en-us.
Media contact: Lisa WilliamsPR
ManagerLisa.Williams@sage.com
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