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Almost half of UK SMEs are frustrated by delayed business payments so where is the broken cog?

Small Medium Businesses

In a recent study conducted by YouGov on behalf of ACI (see infographic), almost half (48%) of the small to medium size businesses (SMEs) surveyed are frustrated by payments taking too long to reach their bank account. They also state that these delays are negatively affecting their ability to run their business.

A third of the SMEs surveys say late payments affect their ability to meet financial obligations on time, 17 % feel that this had a negative impact on staff up-keep including salaries, expense reimbursement and recruitment, and most surprisingly to me, 10 % note access to finance is limited for business requirements such as equipment, product development and research.

So I have to ask myself, how can this be in this day and age? Where is the broken cog?

Let’s take a look at what’s happening here. SMEs are being paid via a variety of mediums, some much slower than others. From cash and cheques to BACS-based direct debits, predicting when funds will clear in their account and be available to use is a tricky business. They also have to spend a lot of time chasing up missing payments, which means they have less billable time. All this means that their cash flow is unpredictable and their forecasting is often amiss.

Let me use an example. A friend of mine is a window cleaner. He used to take payments via cash and cheque, and his cash flow was terrible because he was constantly reminding clients to pay, popping back to collect a payment because clients are often out, costing him time and fuel. This meant his business was unpredictable and therefore he was declined additional financial services by the bank, as he was seen as too high risk to lend to. He then decided to stop accepting traditional payment types, and switch to bank transfer. As this was a more convenient way for his customers to pay, his cash flow problems improved, and the bank could see he was getting regular payments. This meant his loan for a new van and equipment was approved, and he could then service more customers, and make more money.

The example shows that the more promptly SMEs can receive payment funds in their account, the better their cash flow, the greater their chances are they will be approved for additional financial services and the more profitable their business will be – which is great for SMEs, the economy and actually for the banks who will increase revenue because of increased transaction volumes and loans.

So where is the broken cog then? The more banks can do to enable fast, easy-to-use, convenient electronic payments for SMEs, the more profitable the SME will be, which in turn will generate more revenue for the banks – another use case for ubiquitous access to real-time payments.