According to a new survey from the Federation of Small Business (FSB), more than 440,000 small businesses could fail because of a new late payment crisis.
The national small business organisation has called for the Government to step in and take urgent action to improve how companies are paid.
According to the FSB study, 30 per cent of small businesses have seen the late payment of invoices increase over the last three months, of which almost eight per cent said that the problem was so bad that it might force them to close.
While smaller companies wait to get paid, they must continue to pay their suppliers, tax bills and staff wages.
The effect of persistent overdue payment problems is that it has a ripple effect throughout the wider economy, forcing other companies to close their doors as well.
The FSB estimates that more than 400,000 small firms have shut during the pandemic, with late payments being a key factor in the failure of many companies. However, it predicts that up to 440,000 SMEs may be forced to close this year due to late payments.
FSB National Chair, Mike Cherry, said: “Late payment was destroying thousands of small businesses even before the pandemic hit – the pandemic has made matters worse. In the past, the Government has rightly identified greater board accountability as key to spurring change in this area, but delivery has been slow.”
The FSB wants to see every business and Government agency abide by the existing prompt payment code.
They argue that 30-day payment terms should be “the norm for those who are committed to environmental, social and governance best practice”.
However, it has gone further saying that every big UK corporation should have a dedicated director that is focused on improving payments to small businesses.