A third of Scottish business owners say that late payment increased in the last three months of 2021, according to the Federation of Small Businesses (FSB).
The organisation is warning that this trend could lead to more firms closing their doors for good, as it releases the latest findings from its quarterly Scottish Small Business Confidence Index .
FSB surveyed 1,271 small businesses at the start of December, including 159 respondents in Scotland, finding that 12% of Scottish firms say late payment is now threatening the viability of their business.
In the final quarter of 2021, the confidence index for Scotland dropped to -22 points from +1.2 points in the previous three months - meaning that more Scottish small firms now expect their performance to worsen over the coming three months than expect an improvement.
By comparison, the UK index fell to -8.5 points at the end of last year, meaning that a typical Scottish business is less confident about the future than the UK average. The UK figure fell in every quarter over 2021, having stood at +27.3 points in the first quarter.
Across the UK, FSB found business confidence to be lowest in the retail and accommodation and food industries.
The vast majority of Scottish small businesses (82.5%) say costs are rising, with fuel, utilities and other input costs all cited by firms.
Andrew McRae, FSB’s policy chair for Scotland, said: “Scottish firms are being squeezed by rising overheads, ongoing public health restrictions, and servicing mounting debts - to top it off, firms have to contend with the UK’s chronic late payment culture that’s deteriorated over the course of the pandemic.
“Thousands of Scottish businesses needlessly go under every year because of late payment,” he continued, adding: “That’s why every UK big business should have a non-executive director on its board with direct responsibility for payment culture.”
The latest government statistics show that there are an estimated 338,000 small businesses in Scotland – a figure which fell by nearly 20,000 in the first year of the pandemic alone.
McRae said: “The number of local and independent businesses operating in Scotland has fallen substantially since the pandemic began.
“The prospect of new public health restrictions at the end of last year not only snuffed out the optimism of many Scottish independent retail, hospitality and tourism businesses but also hurt their supply chains.
“The economic impact of the virus and the associated restrictions has taken a disproportionate toll on our small business community,” he concluded.
Separately, Barclays research has shown that nearly three quarters (72%) of small or medium-sized enterprises (SMEs) across Scotland are currently waiting on late payments from customers - significantly higher than the UK average of 58%.
The survey of more than 500 UK businesses found that for medium-sized enterprises with 50 to 249 staff, those waiting on late payments rises to 94%.
While customers and clients paying invoices late is no new challenge for businesses, 40% of SMEs say that they’re more likely to experience late payments as a result of the pandemic.
For some business owners, the stress of waiting on late payments has more than just an impact on their finances. Two fifths of SME owners say their mental wellbeing has suffered as a result of late payments, while a quarter of business owners say they haven’t been able to go on holiday over the past couple of years because of money owed to their business.
Hannah Bernard, head of business banking at Barclays, said: “Late payments is the single biggest cause of business failure.
“Having a constant cycle of late payments will hamper the future growth of the economy, and fuel a never-ending cycle of uncertainty for hard working entrepreneurs.
“Business owners across Scotland and the UK have a lot of challenges to juggle right now, and the stress of chasing late payments shouldn’t be one of them.”
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