UK firms squeezed as invoices go unpaid for months

Fresh concerns over client companies enforcing extended payment terms on their agencies have been exacerbated by claims that more than half (55%) of UK SMEs and freelancers still have unpaid invoices from 2022, with many awaiting payments from up to six months ago.

According to a survey of 1,000 small and medium-sized enterprise owners, decision-makers, and freelancers in the UK, conducted by NerdWallet, 46% said they had more outstanding invoices than the previous tax year, with 20% of overdue invoices four to six months late.

From being able to ensure that salaries are paid on-time to covering bills and expenses, having overdue invoices can significantly impact the smooth running of small businesses.

Recruitment took a significant hit, with 28% of SMEs pausing their recruitment efforts due to having unpaid invoices. Additionally, a fifth of business owners said they had frozen planned pay rises for their employees.

Meanwhile, 22% of small businesses said they had, or might have to, make staff redundancies to compensate for their late payments.

In terms of how they went about chasing payments, half said they sent reminders every week until invoices were paid, while a quarter said they pushed for payment every day. An additional 40% of SMEs followed up failure to pay with a phone call or letter.

Only 23% of respondents told NerdWallet they charge interest on top of the agreed amount for each reminder, while only one in ten (11%) said they claimed debt-recovery costs.

NerdWallet business finance expert Connor Campbell said:”At a time when many businesses across the UK are already facing an extremely turbulent period financially, the stress and uncertainty of unpaid invoices is an additional headache that no organisation will welcome.

“Overdue invoices can have substantial effects on SMEs, causing them to make cut-backs on expenditure, recruitment, and even staffing. We were most concerned to see that so many business owners were simply happy to sit back and wait for these late payments without chasing up invoices.

“Of those that did pursue payment, very few opted to charge interest on repayments. Businesses in the UK are entitled to charge interest of up to 8% plus the Bank of England base rate for business-to-business transactions.

“This is an area wherein many businesses could be losing out on compensation for the inconveniences caused by overdue invoices, so it’s important for business owners and freelancers to be aware of the legislation surrounding repayments.”

The move comes amid growing concern that client companies are looking to impose extended payment terms on their agencies. Best practice payment terms are 30 days, however, some marketers request 90 days and, in a few cases, even 120 days.

VoxComm, the global voice for communications agencies, has urged agencies and clients to be aware of the damaging consequences of extended payment terms.

It argues that many agencies, being people businesses, do not have the financial resources to fund months of payroll. Simultaneously, extended payment behaviour harms the agency-client relationship and negatively impacts brand reputations.

IPA director general Paul Bainsfair, who also sits on the VoxComm board, said: “Pushing out payment terms is a pernicious pathway to go down and agencies should be aware that extensions are tantamount to a discounting of their net income.

“VoxComm applauds clients who resist the temptation to make these demands. They will enhance relationships with their agencies to the benefit of effectiveness.”