Accountants critical to defending SMEs against late payments

The combination of accountants’ expertise and real-time cashflow forecasting can play a major role in safeguarding small businesses against the worsening issue of late client payments, according to Alex von Schirmeister, managing director UK & EMEA at Xero.

“Any company that is very aware of its accounts and on top of its numbers will have more information at hand and will therefore be able to spot cashflow problems more easily,” he says.

“We know that the accountants we work with rely very heavily on Xero as the core accounting software to provide a very intuitive and very easy visibility of that information.”

In September, a research report published by Xero estimates that late payments are costing small businesses in the UK £684m per year, with almost half of invoices owed to small businesses in 2021 having been paid late.

The research also found that 12% of invoices were paid more than a month after they were due.

The Xero report, entitled Crunch: Cash flow challenges facing small businesses, identifies this as one of a series of “cash flow red flags” in addition to expenses and seasonal slowdowns.

von Schirmeister stresses the “unbelievably important” role accountants play in spotting these, particularly during times of economic uncertainty.

“Cashflow for a small business becomes everything. And it isn’t just a nice cash reserve – oftentimes it’s an immediate survival tool, and can be the difference between profitability and administration.

“Small businesses that use Xero and are assisted by an accountant have fewer cashflow problems or late payment problems than businesses that don’t. There’s an unbelievably important role that accountants play in that.”

According to Xero’s research, small business expenses rose by 18% in 2021.

‘Unapproved debt’

von Schirmeister also places emphasis on the largest companies, labelling them the “biggest culprits” of late payments despite the fact that they “don’t have a cash problem”.

“I think it’s ingrained in the way many large corporates think. Holding onto cash for as long as you can and paying as late as possible mean you’ll have more cash, and you can either invest that or generate interest from it.”

Based on this, von Schirmeister argues that it’s more appropriate to refer to late payments as “unapproved debt”. Calling it “what it is” will elevate the consciousness of the issue, he says.

“It’s a large corporation machination to benefit themselves at the expense of someone else. They’re benefiting from a credit line on which they’re paying no interest, and that is unapproved debt.”

In addition to the proactivity of businesses and their advisers, von Schirmeister says that governments must be “more forceful” on large companies and mandate a late payment disclosures – similar to how ESG disclosures are mandated in certain jurisdictions.

“The reality is, unless government intervenes with some kind of policy or obligation, what is there to incentivise large companies to change their behaviours?”