Unpaid Invoices Costing UK Economy £1.4 Trillion
More than one out of 10 (13%) of invoices issued by UK small businesses remain unpaid every year, according to research from Tradeshift, causing a £1.4 trillion black hole in the economy. At a time when life is tough for many small businesses, just under a third (30%) said cash flow issues caused by unpaid invoices could force them to lay off staff and 20% said they would have to turn down business or take out a business loan.
The responses to the Tradeshift survey from UK small business owners and financial decision makers are revealed in a report entitled ‘Getting Paid’. It found that small businesses issue 528 invoices on average every year and yet 69 of these remain unpaid, totalling 177 million invoices.
In addition to these unpaid invoices and, despite the majority of small businesses having payment terms of less than 60 days, 39% of all invoices issued are not paid on time. When asked about the reasons for non-payment of invoices, 34% put slow payers at the top of the list, followed by companies going out of business (24%), disputes over work (19%), cash flow (11%) and administration (9%).
The resulting administrative burden of chasing these payments requires an average of 25 employee hours per week spent managing, processing and chasing invoices. Small business owners estimate that 76% of this time could be saved if all invoices were managed online, but only 28% said they currently handle invoices in this way. This burden is magnified by the fact that over a third of invoices are still received by post.
Mikkel Hippe Brun, co-founder and chief strategy officer (CSO) at Tradeshift, sees this as a dangerous trend that is crippling UK companies: “For centuries, the invoicing process has held small, innovative businesses at the mercy of others with a clear disregard of agreed payment terms and damaging cultural precedents. This is 2012 and there’s no reason why invoicing shouldn’t undergo a revolution that fits the modern times in which we live rather than acting as a noose waiting to drop around the necks of the UK’s army of small businesses.”