The Domino Effect – the impact of late payments

This report examines the issue of late payments, which can have significant impacts on smaller businesses. Based on a survey of around 3000 companies across 11 countries, our analysis indicates that 11.0% of all invoices issued by SMEs are paid late, equivalent to a total of USD 1.01 trillion per year. Worse, 7.5% of invoices are eventually written off as bad debt, having an even more significant impact on operations. The proportional impact of late payments varies by country, but in all cases there is a significant issue.

Late payments are found to have an adverse impact on SMEs in a number of ways. Our previous report [accessible here] identified that a significant amount of time and effort was spent by SMEs chasing late payments; again, this varies by country, with the average SME in South Africa losing 20 days to this task while Australian SMEs only require four work days on average. Any time lost on this task could instead be used to increase productivity.

On top of this lost time, around 40% of respondents to the survey identified some clear direct impacts that late payments have on their business. These included both impacts on the firm (reduced investment, and a delay in paying their own suppliers) and impacts on individuals (reduced pay reviews, and reduced bonuses). This last point was noted in every country other than the US: late payments have a noticeable impact on the payment of annual bonuses, which is likely to have further impacts on staff morale and productivity.

Given these impacts, we have considered if there is a role for intervention. We first examined if there is a particular type of company that is more likely to pay invoices late, but were not able to ascertain any particular patterns; contrary to intuition, large companies are not more likely to be late payers than SMEs. Instead, the issue is seen across all payers, meaning any intervention will need to be wide-ranging. That is not to say the intervention is unlikely to succeed. Analysis shows that firms are often told there is no reason for the late payments, indicating there is a great opportunity for intervention. The question instead must be how to define an effective campaign.