QuickBooks’ study2 found that the average amount owed to small businesses with at least one overdue invoice has risen 6% year on year to £22,700 in May 2022, up from £21,400 the previous year – which is 65% of the average small business’ typical monthly turnover.

Meanwhile, almost two-thirds (65%) of invoices owed to small businesses were overdue within the month of May this year. In the same period last year this figure was 63%, as the cost-of-living crisis hits. 

These findings add to the already concerning findings of a recent study by the Federation for Small Businesses (FSB) earlier this month, which found that half of the 1,300 small business owners and sole traders surveyed between April and June reported being paid late, while one in five said the issue was getting worse.

Higher costs and decrease in ‘money in’ to blame

A recent study of QuickBooks customers4 found that for the first time since last year cash flow appeared to deteriorate in March 2022, with the number of small businesses reporting negative cash flow rising nine percentage points since January to 46%.

The decline in cash flow appears to stem from less ‘money in’ for these businesses, coupled with increased costs. Alongside fewer invoices being paid on time (dropping to just 45% in March, down from 57% in January), small businesses are also dealing with price increases from suppliers and for general running costs.

One of the biggest pain points for small businesses at the moment is rising energy bills, with just under half (48%) reporting an increase. A rise in the cost of fuel for business vehicles was another issue (34%), as was an increase in costs for raw materials and stock (31%). As a result, one in three small businesses has said they have had to increase their prices, while others are looking to cut costs and increase their cash reserves.

Yet despite these rising costs, small businesses report that their level of confidence remains stable and the same as January 2022, with 68% of small businesses saying they are confident in their financial stability.

Jolawn Victor, Vice President and UK Country Manager, Intuit QuickBooks, says: “Tighter profit margins and limited cashflow mean that the rising cost-of-living is even more of a burden for the smallest businesses. Now we’re seeing that, as ever, it’s these businesses who are impacted most by late payments. 

“There are however effective ways for small businesses to arm themselves against this issue. Investing in digital software with specially designed features - such as invoice tracking and automated reminders - means small business owners can avoid wasting time on awkward calls and emails. 

“It is great to see that confidence among small businesses remains high despite the challenges being thrown at them. Their resilience is commendable, but it’s important to know that there is support out there. Automating back office processes can reduce stress and help small business owners save valuable time, allowing them to focus on what is really important: running their business.”