The Domino Effect: The Impact of Late Payments

1 in 10 invoices paid late, impacting Small & Medium businesses to the tune of $3 trillion globally

An economic report published today by Sage reveals the detrimental impacts of late payments on Small & Medium Businesses, currently equating to $3 trillion globally. With one in 10 invoices failing to be paid on time, the study reports up to eight percent of payments are either never paid or paid so late that businesses are forced to write them off as bad debt.

‘Late Payments: The Domino Effect’ highlights that almost 40 percent of Small & Medium Businesses in Canada experience direct negative impacts from late payments. As a consequence of late payments, 13 percent say they struggle to pay bonuses around the festive period, and 12 percent say they experience difficulties with paying suppliers.   

Other common impacts across the 11 countries analyzed include delaying investment into the company (14 percent for Canada), and impeding the ability to pay its own suppliers in turn (12 percent for Canada), creating a vicious cycle.

However, when looking at the reasons why Small & Medium Businesses don’t chase payments, the overwhelming response from 31 percent of those surveyed in Canada is to protect client relationships, indicating that there is a stigma around chasing payments.

Paul Struthers, Executive Vice President & Managing Director of Canada at Sage, said, “Almost 40 percent of SMEs contribute to 55 percent of total GDP in Canada. This is a very substantial part of the economy that relies on low cash reserves to operate, and delays to income can have substantial impacts on growth and operations.”

“We need the culture around late payments to change, so that small businesses can get on with doing what they love—running their business—rather than worrying about when the money will come in. In 2017, it is simply unacceptable for 18 percent of all payments paid to Small and Medium businesses to be paid late.”

Undertaken by Plum Consulting, the research analyzed responses from over 3,000 business builders to look at the effects of late payments on Small & Medium businesses. It highlights significant implications for our entrepreneurs and their ability to operate, plan and grow.

The results underscore that the Canadian economy, as a whole, could benefit from any improvement in the operational efficiency of SMEs, as this would enable Canada to become more competitive internationally and increase the country’s growth prospects. In Canada, a significant percentage of companies with which SMEs enter into a commercial transaction pay for their products or services late—at least 10 percent of all payments to SMEs are coming in late according to survey results. This corresponds to 10 percent of all invoices.

Because of their size, SMEs have fewer financial resources they can utilize in the event of unexpected shocks—making them particularly vulnerable to cash flow problems. Receiving late payments from other companies was found to be one of the leading causes of cash flow problems for SMEs and something that could adversely affect the companies’ future growth and productivity.

The silver lining? The problem of late payments may be easily remedied. Respondents shared that ‘no reason’ is most often given as the reason for a payer company making their payments late. This highlights that mandating a stricter payment schedule may help reduce the number of late payments to SMEs in Canada.

Global snapshot: Late Payments Landscape – The Domino Effect

Across the 11 countries analysed Small & Medium Businesses account for at least 96 percent of total enterprise, ‘protecting client relationships’ is the most cited reason for not chasing late payments – leading Sage to call for a fundamental shift in culture for Small and Medium business to be proud to chase for work undertaken.

Country	Proportionof invoicesthat are paidlate (%)	Average numberof days per yearspent by SMEschasing up latepayments	Top barrier to chaselate payments forSMEs in each country	Proportion ofinvoices thatbecome baddebt (%)
UK	18	15	Protect client relationship (40%)	9
South Africa	15	20	Protect client relationship (40%)	9
France	11	6	Protect client relationship (21%)	8
Ireland	15	7	Protect client relationship (43%)	8
Australia	9	5	Protect client relationship (29%)	7
Brazil	7	14	Protect client relationship (35%)	7
Canada	10	7	Protect client relationship (31%)	8
Singapore	18	15	Protect client relationship (41%)	9
Spain	12	18	Protect client relationship (37%)	8
United States	13	15	Protect client relationship (32%)	10
Germany	9	5	Protect client relationship (31%)	8

Tim Miller, Partner at Plum Consulting, said, “losing the cultural stigma of chasing late payments is crucial to escaping the domino effect—all the time that SMEs are worrying about chasing late payments, their own suppliers will be paid late, and the cycle will continue. SMEs are more likely to trade with other SMEs, meaning this will disproportionally affect smaller companies. An automatic system to send reminders for unpaid bills may get over the cultural aversion—and could also overcome the lack of staff and resources that some SMEs cite as reasons for not chasing late payments.”

METHODOLOGY

This research was conducted by FTI Consulting’s Strategy Consulting & Research team from 21st July–4th August 2017, involving n=3,028 SME respondents across 11 countries, who are either fully involved in or knowledgeable of the decision making in their organisation.

The country specific breakdown is as follows:

• United Kingdom: n=280;
• South Africa: n=271;
• France: n=277;
• Republic of Ireland: n=289;
• Australia: n=278;
• Brazil: n=270;
• Canada: n=278;
• Singapore: n=255;
• Spain: n=276;
• United States of America: n=282;
• Germany: n=272. 

Please note that the standard convention for rounding has been applied and consequently some totals do not add up to 100%. Further information on the results and methodology can be obtained by emailing [e-mail].

Media contact:

Betty Tian, Sage Office: 604-207-3611 Mobile: [phone] [e-mail]

About Sage

Sage (FTSE:SGE) is the global market leader for technology that helps businesses of all sizes manage everything from money to people – whether they’re a start-up, scale-up or enterprise. We do this through Sage Business Cloud - the one and only business management solution that customers will ever need, comprising Accounting, Financials, Enterprise Management, People & Payroll and Payments & Banking.

Our mission is to free business builders from the burden of admin, so they can spend more time doing what they love – and we do that every day for three million customers across 23 countries, through our 13000 colleagues and a network of accountants and partners. We are committed to doing business the right way, and giving back to our communities through Sage Foundation.

Find out more at www.sage.com/ca.