Ask any owner of one of the UK’s 5.7 million SMEs , and they will tell you that one of the hardest things to deal with is late payments from their customers, who are often large, established corporates.

It’s a familiar issue that has been regularly debated and discussed. But I question whether enough has actually changed. While the government has introduced some helpful measures, I believe that more action is urgently needed. Current practices don’t go far enough.

The scale of the problem

Our research has found that over half of all UK small businesses have had a client pay late within the last 12 months, with firms being owed, on average, over £34,000 as a result. For many, this not only hinders their ability to grow and operate more effectively, but — in the case of a quarter (25%) —has pushed them to the absolute brink.

Chasing up late payments can take up valuable business owner time, which is not only unfair and unproductive, but is time they could otherwise spend seeking out new opportunities or reaching prospective clients.

Companies of all sizes rely upon payment to reinvest into their own business and people. Late payments prevent SMEs from training and developing their own employees, posing a significant risk to morale, commitment and retention. Even more worrying is the uncertainty they may feel about meeting their payroll deadline each month.

For some, late payments become business critical: more than two in five (23%) have experienced liquidity problems while waiting to be paid, with 16% being pushed to the verge of collapse.

Enough is enough. The UK’s SMEs are the backbone of the UK economy and it is vital we create an environment in which they can thrive. More needs to be done right now.

Financial penalties for poor payment practices

We welcome the efforts of the government over recent years to tackle late payments. The introduction of the reporting payment practices and performance  audit in 2017, as well as the prompt payment code,  have been positive steps. However, we believe that further strengthening of this legislation is required.

At Aldermore, we would like to see the introduction of a robust reporting system that makes large companies’ payment performance more visible, highlighting where they are regularly and systematically falling short of their deadlines to pay SMEs.

Where companies repeatedly fail to pay smaller businesses on time, we have proposed the introduction of financial penalties, with the money collected invested into an SME development fund. This fund could be used in two ways: to aid the development of new payment technology to help streamline processes so that SMEs get paid faster, and to offer SMEs support with the training and upskilling of staff.

Large companies simply have to get better at understanding what it’s like as a small supplier. That way, they would appreciate the urgency of tackling this issue — moving it from a ‘nice to do’ to a genuine business priority.