Four in ten (38%) UK small and medium-sized businesses (SMEs) are now taking over 90 days to pay their contract staff, according to new research from Sonovate, the leading provider of embedded finance and payment solutions for the contingent workforce.
More than two in five (43%) of UK SMEs now struggle to pay their contract workers on time as a result of cash flow problems within their businesses. In contrast, identical Sonovate research conducted in summer 2022 found that at that time just a quarter (28%) of SMEs failed to pay their contractors on time and the same proportion (27%) took longer than 90 days to process the payments.
Two thirds (63%) of the SMEs surveyed say that late payments from clients or customers have a negative knock-on impact on their ability to pay contract workers on time. Again, this is a concerning comparison to last year, when just half (50%) expressed that late payments dictate their ability to pay contractors on time.
Statutory payment obligations state that, unless an alternative payment arrangement is agreed by both parties, any UK business must pay a supplier within 30 days of receipt of an invoice for any goods or services provided. These rules are as applicable to clients paying SMEs as they are to SMEs paying their own suppliers, including contract workers.
Richard Prime, Co-Founder & Co-CEO of Sonovate comments: “Whether it is the intensification of the ‘cost of doing business’ crisis we’ve seen in the past year, or incumbent lenders’ persistently inadequate service to the SME sector, we are still experiencing chaotic cash flow ripples across the economy. It is the UK’s growing army of contractors that is increasingly facing the brunt of this, having to wait over three times as long as they should have to to get paid for the services they provide. This must change, and quickly.”
The consequence of persistent late payments of earned wages to contractors has a universally detrimental impact on the UK’s SME community. Half (51%) of respondents to Sonovate’s SME study say payroll issues can cause them to miss out on quality contract talent, and over a third (37%) say they have even lost contract workers as a result of not being able to pay them promptly enough.
Prime continues: “It is not acceptable to suppose that, as the population of contract workers continues to expand, businesses will be able to get away with slow payroll. Talented contract workers are hard sought, hard to retain, and will vote with their feet more quickly than any other generation of workers that came before them. SMEs need greater control of their payroll capability to ensure the best people that work for them stay close and continue to add value.”