Kate Hayward
The cultural shift to eliminate ‘unapproved debt’
For too long, the UK’s 5.7 million small firms have been used as a source of free credit by larger businesses – a practice we call ‘unapproved debt’.
Addressing the late payments crisis requires more than just new rules; it requires a cultural shift. This is why we are incredibly proud to be awarded Gold status in the Fair Payment Code. This award not only recognises the high standards of our payment practices, it serves as a benchmark to encourage other organisations to rethink their culture of paying suppliers.
The cost of the controllable crisis
Late payments cost UK small businesses an estimated £1.6 billion annually. But the cost is more than financial, it’s a drain on a small business owner’s time and mental wellbeing. Xero research shows when payment is withheld, 86% of small business owners report a major impact on their stress levels, often struggling to meet their own household bills as a result.
Xero data shows improvements, but more can be done
Xero Small Business Insights data shows some recent improvements, small firms are still being paid over a week late on average, with some industries getting hit worse than others. Hospitality businesses were paid on average 4.7 days late in the December quarter. On the other hand, arts & recreation, education & training, media & communications, and manufacturing businesses all have to plan for invoices being paid around two weeks late.
This delay has a detrimental impact on cash flow management, which is one of the biggest challenges facing small business owners. The goal is to reach a late payment measure of 0, that is a world where all small businesses are consistently paid on time.
From compliance to culture
The government’s recent move to mandate 60-day payment terms, backed by potential fines, is a welcome step. It sends a clear signal that using suppliers to bolster corporate balance sheets is unacceptable. Real change arrives when large organisations recognise their responsibility to the wider business ecosystem. At Xero, we lead by example, committing to paying our own small business supplier invoices within 10 days.
Removing the friction
While we advocate for systemic change, we also empower small businesses with digital tools to help them get paid on time:
- Making it easy for their customers to pay: While most consumers prefer digital payments, many small businesses don’t yet offer them. Xero bridges this by offering ‘pay now’ buttons on invoices, helping businesses get paid up to twice as fast. Xero customers using Stripe can offer payment via credit cards, debit cards, Apple Pay, Google Pay, Tap to Pay, and Pay by Bank.
- Does the chasing for you: Automated invoice reminders can save business owners up to three hours of manual work every week.
- Proactive planning: By managing every invoice and bill in one place, businesses get a real-time picture of their bank balance, making it easier to plan around new 60-day rules.
The Fair Payment Code is a vital step in holding businesses accountable. At Xero, we will continue to champion this cause until prompt payment is recognised not just as a legal obligation, but as the right thing to do for our small business community.
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