By Claire West
A nuanced approach is key to tackling the practice of late payment among UK’s smallest businesses, a new global study from ACCA shows.
London, 13 February 2015: A new report from ACCA (the Association of Chartered Certified Accountants) has found that the culture of late payment among businesses inhibits the ability of the UK’s smallest organisations to take on more employees.
Charlotte Chung, ACCA’s senior policy adviser on SME issues said: “Microbusinesses and other small enterprises are less likely to increase headcount when faced with late payment. Compared to large corporates, we found that the effect of late payment on small businesses who want to expand was significantly greater, by 54% and 47% respectively.”
The report found that businesses with fewer than 50 employees are typically twice as likely as large corporates to report problems with late payment. According to Charlotte Chung, the cumulative impact of persistent late payment on small business activity is significant.
“Late payment hurts individual businesses and the wider economy in a number of ways, from increased costs to reduced capital spending or suppliers going out of business. What’s more, its impact is exacerbated among credit-constrained businesses.
“Unsurprisingly, it is the headcount and investment decisions of smaller businesses that are most sensitive to late payment. Late payment and customer defaults can cascade down the supply chain, crossing industries and borders until they reach the most financially secure financial institutions, which in many cases involves the Government.”
While these findings may point to late payment being a wholly harmful business practice that requires hard action to remedy, ACCA advises care be taken by policymakers. The report identifies a very large share of business to business trade that makes use of trade credit - where payment is not made at the time when goods or services are delivered, but rather at a later date, usually agreed in advance by the two parties.
The important role late payment plays in economic growth means it requires a nuanced legislative touch from policymakers, as Charlotte Chung explains:
“Late payment is often understood as a solely negative aspect in business, but this is not necessarily the case. It can also be a useful tool for business growth. Only when this complexity is understood can appropriate responses be developed to address the aspects of late payment which do impact negatively on businesses.
“ACCA has identified thirteen types of deviations from prompt payment, each of which calls for a different approach from businesses and policymakers. Failing to distinguish between them will lead to poor policies that run the risk of doing more harm than good.”