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News Roundup for 2018 - SME Finances and Debt

Since the Brexit Referendum in June 2016, small to medium enterprises (SMEs) in the UK have been facing an uncertain future as the Brexit negotiations have rolled out.  We’re rapidly approaching the date that the UK is due to leave the European Union and there is still no firm plan for what happens when we’re no longer an EU member which means that Brexit preparations made by businesses have to be flexible, with business owners ready to pivot to minimise any negative impact on both trading and finances.  Today we’re going to take a look back at some of the financial and business news from 2018.

Back in February, Scotland’s Police force began looking at using the services of professional debt collectors after writing off invoices totalling nearly £800,000 the previous year.  The Scottish Police Authority (SPA) had been criticised for the exit package of its former chief executives when it came to light that it had provided a former chief executive with a golden handshake payment of £57,000.

In October it was revealed that 17% of small business owners forgo their own wages in order to make sure their business survives due to unpaid business debts and regular late payments.  The majority (52%) of small businesses in the UK experience cash flow problems as a result of late and non-payment of invoices by suppliers and customers alike.  Nearly half (43%) admitted that they struggle to stay in business and are unable to pay their own suppliers on time.  More than a quarter (26%) revealed that they had wasted time and legal fees on  chasing or covering late payments, diverting significant amounts of their time and money which could have been used to benefit their businesses.

On a similar theme, it was disclosed that Britain experiences the longest B2B payment delays when compared with other European countries – 10 days longer than the average among West European businesses.  The most common reason for payment delays was caused by customers using outstanding invoices as a form of financing.  However, a significant number of late payments were blamed on disputes over the quality of goods or services.  As a result of this, several B2B debt recovery agencies have reported an increase in inquiries for their services due to non-payment of invoices.

In November it was revealed that a new UK Debt Collection scheme that was scrapped in September cost British tax payers £18 million.  The Ministry of Justice (MOJ) initiative (“Transforming Compliance and Enforcement Programme” was supposed to be part of the Courts and tribunals modernisation programme and was designed to help those owed money as compensation as victims of crime.  The MOJ was unable to service the budget required to develop the project which was expected to cost £66 million in total.

The Chair of the Business, Energy and Industrial Strategy Committee, Rachel Reeves MP, has called for new Business Late Payment laws to tackle the problem of late payment practices by large companies who are paying their SME suppliers late on a regular basis.  Reeves stated that the government’s Prompt Payment Code has been ineffective and wants to introduce a statutory requirement for companies to pay within 30 days or face fines.  With SMEs comprising a vital role in the health of the overall economy, protecting them from late payments is a vital issue.