29 Mar 2022

Out of the frying pan and into the fire: SMEs, COVID-19, and late payments

There is a reason Britain is known as the ‘Nation of Shopkeepers.’ We are a small yet entrepreneurial island; after all, the United Kingdom is home to more successful micro-enterprises and small businesses than any other country in Europe.

Today, there are 5.5 million small businesses (those with 0 – 49 employees) in Britain, which makes up three-fifths of employment and around half of the turnover in the private sector. Despite all the challenges these enterprises have faced thanks to the pandemic, their entrepreneurial spirit hasn’t just remained unbroken, it has been reinvigorated: from March 2020 to 2021, over 810,000 business started in the UK, up 22% compared with the same period the year before.

Starting a business is no easy feat – especially during the last few years. From the pandemic and lockdowns, to surging inflation and a cost-of-living crisis, and now late payment debt – businesses have gone from the frying pan and into the fire.

Bad debt

If this didn’t make it tricky enough to keep heads above water, the myriad of new businesses founded during the pandemic and their intrepid owners now have to deal with a backlog of toxic business to business debt. Currently, British businesses are chasing nearly £50 billion in overdue payments, which causes over 50,000 to close every year – about 961 a week.

This is a not just a threat to small businesses that don’t have the capital to absorb restricted cash flow. Everyone is affected, as the ripples spread out through the entire supply chain; in turn, suppliers, staff, and landlords don’t get paid on time either.

The difference is, bigger companies usually have the capital to survive. With deeper pockets, overheads can be covered with little impact to wages and productivity. Inversely, many smaller businesses have razor-thin margins. Although this is an issue of national economic importance – for Britain’s SMEs it isn’t just an abstract, macro concept – but rather, an imminent, mortal threat.

Why now? And what comes next?

As with most things, the pandemic has had a unique and adverse effect on this dynamic. To protect small businesses, the Government temporarily restricted winding-up petitions (found in the Corporate Insolvency and Governance Act 2020). Subsequently, bad debt grew – and no one faced insolvency as a result. Arguably, this was necessary to help businesses stay operational, effective and most importantly, employing people – but it had a serious side effect: late payments. Businesses could pay late and face no consequences, and so many did.

These measures couldn’t last – and from the 1st of October 2021, winding-up petitions could be given to anyone who was late with a payment of over £10,000 – but only on singular debts. Theoretically, a late payer could have as many late payments under this amount as they wanted. Therefore, unfortunately this new policy did little to tackle the network of toxic debt in Britain’s economy.

We are already witnessing an increase in insolvency figures – and when the protection measures end entirely on the 31st March 2022, bankruptcies are expected to skyrocket.

Although the fate of your invoices are in the hands of your customers, there are a few things you can do to improve your chances of getting paid:

  1. Pay on time

It may seem counter-intuitive, or perhaps incredibly obvious – but if you pay on time, that’s one more application for payment settled on time, and so on throughout the supply chain. Reputations stay intact, relationships live to see another day, brands stay strong, and business remain buoyant. Everyone wins.

  1. Know your customer

Not all businesses neglect their duties and delay payments, and not all who have paid late do it on purpose or do it consistently. We are all human after all and often it is simply miscalculation which leads to a cash flow crisis. Understanding the difference can be vital to choosing reliable partners, customers, and clients. Background credit checks can help, and with platforms like Know-it, you can look at the payment history of registered businesses so you can know who has a history of missing payment deadlines.

  1. Automate and digitise

Technology is your friend. Many who are paid late were done so because of organisational issues –messy processes, forgetful accountants, or illegible scribbles trying to pass as a suitable invoice. So, don’t cut corners. Be your own best friend and ensure you’re on top of your cash flow management processes, and digital tools such as automatic, digital invoices can be a great help.


Read about how Spreckley and Know-it drew regional and national attention to the issue of late payments.