Our mission at Penny is to ensure businesses are able to keep operating without the worry or hindrance of poor cash flow caused by forces outside of their control - a mission which we’ve been able to accomplish time and time again for our partners. However, almost a year on from the pandemic we’ve seen , and the closure of thousands of businesses in the months that followed, we noticed more and more business owners in need of our help.
So, to get to the centre of the issue, we decided to look into just how many businesses were currently owed money in the UK due to unpaid invoices, and how much this would equate to on a national scale.
After speaking with our customers, we discovered that UK SMEs are currently chasing £61bn* worth of unpaid invoices, up 20% since this time last year - enough money to employ more than two million people** on an average UK salary.
This figure is up 20% in just 12 months.
We also discovered that two thirds of the six million SMEs in the UK have at least one late payment on their books, with an average value of £15,370.
Based on the UK’s average salary of £29,600, that unpaid money could pay for businesses to hire more than two million people. Currently 1.74 million people are out of work in the UK (5.1%), with experts predicting a rise to 7.75% unemployed once furlough schemes come to an end mid-2021.
Our survey revealed business owners and managers now spend an average of two days a month chasing unpaid invoices and associated financial admin, up 25% on this time last year. More than a quarter (26%) of the business owners we spoke to admitted to currently having 'three or more' unpaid invoices on their books.
We also found that companies across the board are being pressured to increase the length of their standard invoice terms - from an average of 33 days to 56 days - an increase of 69%. One in 10 businesses said they had been asked for 60 day payments terms during the pandemic.
Clearly a significant problem for SMEs, research from the Federation of Small Businesses in 2016 revealed that 50,000 small businesses are put out of business annually as a result of late payments, a £2.5bn hit to the UK economy.
As part of the study we also asked business owners how they felt about the upcoming lockdown lift, and whether they felt prepared to return to a sense of normality. Of the businesses we spoke to, more than three quarters (77%) stated they were ‘just as worried’ about the next twelve months, while a further 56% said they felt ‘unprepared’ or ‘unsure’ about coming out of lockdown.
When asked whether they believed the government had done enough for them throughout the pandemic, more than half (52%) of respondents stated the support had been ‘okay’, however more than a third (34%) said the government’s approach to helping businesses ‘hadn’t been good enough’.
PennyFreedom.co.uk co-founder Colin Gunnel, said,
When we started PennyFreedom.co.uk our goal was to help businesses of all shapes and sizes improve their cash flow and financial stability, and eradicate worry about late payments and that hasn’t changed. COVID may have changed the way we all do business, but late payments and outrageous payment terms must be a thing of the past. The damage it does to small businesses and sole traders can be immense, and we were shocked to see just how much is owed to SMEs right now. It’s no wonder so many SMEs in the UK are struggling to stay afloat, especially in industries more heavily affected by the pandemic.
We wanted to humanise these figures for people because ultimately they’re never just numbers on a spreadsheet. Prompt payment under agreed terms is imperative to keeping SMEs, the backbone of the UK economy, thriving and keep people in work. With unemployment set to rise again later this year the fact that so much money is owed is criminal.
* Methodology: 3,960,000 (Number of business with unpaid invoices) x £15,370 (average value of invoice) = £60,865,200,000
**Methodology: £60,865,200,000 (total owed to UK SMEs) / £29,600 (average salary UK Jan 2021) = 2,056,256 people