Late Payments: Thinking Through the Implications for SMEs

Last year, I told my old friend David Brown to pick up the pen and try his hand at writing blogs. David was previously the founder of Oxygen Finance and is the founder of Remitia. Corner him over a coffee, and the man has quite a few things to say about challenges impacting adoption of trade financing programs and the limits of traditional purchasing cards, which was, at the start, some of the inspiration behind Oxygen, which has evolved materially since at the time.

Now at Remitia, David is passionate about getting payment in the hands of SMEs as fast as possible. In a recent blog post on the topic, David notes that, based on research he’s looked at in the UK, “£41 billion of payments to suppliers are considered late. We have not been able to confirm what late specifically means in practice, 30, 60, 90, 120 days etc., but what we do know is that out of this £41 billion in late supplier payments, £36 billion is owed to SMEs.”

There’s an irony in the data, however: “When it comes to payments the 80/20 procurement rule is almost completely reversed so that 80% of SME payments are, in fact, late; whereas a mere 20% of large supplier payments are late. Yes, 80% of late supplier payments are to SMEs!!”

The implications of this are significant indeed and speak to:

  • The limited options to get payment in the hands of SMEs faster compared with larger organizations
  • A continuous cycle which makes it difficult for SMEs to accelerate market share given capital constraints and boring cost – ultimately resulting in lower levels of supplier innovation for buying organizations
  • Increased supply risk for procurement organizations
  • The administrative costs of expensive financing, such as supporting all the data requests that factors need
  • A lack of enablement via supplier networks and other solutions that can facilitate early payment

Ultimately this matters on a country and societal level. As David writes, “given that the UK’s SME/SMB sector is responsible for 60% of the UK workforce, there are a lot of votes at stake in this sector and these votes can link together to help make a change.”

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