Late payment culture cripples productivity of SMEs

29 March 2019

UK SMEs are seeing their efforts to grow stifled by late payments, causing thousands to enter insolvency proceedings each year. According to experts from Duff & Phelps, this also has a major impact on the UK’s economy, meaning late payment culture must be tackled if the country is to dodge yet more economic stagnation in the shadow of Brexit.

Small and mid-sized enterprises in the UK face a myriad of pressures at present. Brexit anxieties are keenly felt by SMEs, with more than nine in 10 suggesting recently that economic conditions have worsened in the last 12 months. 66% of SME leaders also expect conditions to further worsen in the coming year.

At the same time, firms are keen to see value for money from investing in external expertise. Consulting fees which weight much more heavily on smaller firms, who spend £60 billion per year on professional services, but feel that more than £12 billion of that figure is wasted on unnecessary or bad advice.

Late payment culture cripples productivity of SMEs

Above all, however, SMEs are extremely vulnerable to late payments, and, according to a new study, the situation is only getting worse at present. According to corporate rescue consultancy Duff & Phelps, small businesses in the UK are facing a collective bill of £6.7 billion per annum due to late payments by other companies, while the average value of each late payment now stands at £6,142. This has risen from £2.6 billion in 2017, illustrating the plight of SMEs, particularly with uncertain economic times ahead.

Indeed, the spike in late payments has already caused significant productivity issues for SMEs, which in turn compromises their financial stability. With staff wasting hours chasing down late payments and businesses becoming preoccupied with short-term cash flow problems, they are less able to concentrate on creating new value for the firm, which in many cases gradually slides toward insolvency.

Small businesses across the UK are facing major cash flow pressure, leading to increased financial instability as a direct result of a late payments culture. This is likely a big driver of the UK’s 20% boom in insolvencies over the last three years, especially as it has a knock-on effect on other SMEs within the supply chain of those struggling firms. Approximately 50,000 small businesses fail each year because of late payments, amounting to a shortfall of more than £2.5 billion for the UK economy. 

Commenting on the findings, Paul Williams, Managing Director, Duff & Phelps, said, “In this modern era of technology, which is designed to enable business agility, late payments are particularly galling as there are no excuses. The day of the ‘cheque is in the post’ is long over!... More can be done to avoid businesses reaching this situation in the first place. SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services and adding value to the customer experience, rather than chasing outstanding payments.”

The UK Government currently promotes its voluntary Prompt Payment Code to encourage good practice, but late payments by larger companies remain a common pain point for many SMEs. There may be hope for an end to late payments, however, following an announcement in the Spring Statement from Chancellor Philip Hammond. The Government aims to crack down on the practice, with Hammond stating big companies should hire a Non-Executive Director to be responsible for reducing late payments to small suppliers. The statement also advises that organizations publish payment practices in their annual reports.


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Alpha FMC launches dedicated ETF & indexing practice

04 March 2019

Asset and wealth management consultancy Alpha FMC has strengthened its market offering with the launch of a dedicated ETF & Indexing Practice. The new wing has been forged in response to the growing significance of index funds and ETFs and demand for consulting support from clients, and will be led by newly appointed Marc Knowles.

Index exchange-traded funds (ETFs) seek to track a benchmark index like the S&P 500 as closely as possible. They are similar to index mutual funds, however, in this case mutual fund shares can be redeemed at one price each day, the closing net asset value (NAV), index ETFs can be bought and sold throughout the day on a major exchange. With an index ETF, investors gain exposure to numerous securities in a single transaction.

With such high stakes involved in the area of ETFs, demand for external expertise in the sector is high. Responding to this, Alpha FMC, a global asset and wealth management consultancy, has opened a new dedicated exchange traded fund and indexing practice. Alpha’s ETF and indexing practice will help Alpha’s clients develop and implement strategies to benefit from the increase of assets flowing into index strategies and ETFs.

Alpha FMC launches dedicated ETF & indexing practice

According to a release from the firm, the launch of the new arm represents a “key milestone” in Alpha’s expansion strategy. Since its inception more than 15 years ago, Alpha has grown rapidly; with dedicated practices covering the full asset and wealth management value chain, it is now one of the leading global consulting firms in the industry.

In order to expand the ETF offering, Alpha has appointed Marc Knowles as a Director to lead the practice. Knowles arrives at Alpha from KPMG, where he led the Big Four firm’s ETF dedicated management consulting practice. He started his career at Blackrock iShares, where he was one of the first hires into the European ETF business in 2001. Over the next 13 years, Knowles held multiple senior positions across the product, operations, capital markets and distribution functions, before going on to lead the launch of BMO GAM’s ETF platform in Europe.

Euan Fraser, Alpha FMC UK Chief Executive Officer, said, “We are very excited about the launch of our ETF & Indexing Practice. Exchange Traded Funds and index strategies are increasingly being adopted by asset managers looking to position their businesses for success in the next critical chapter for the industry. Marc has a fantastic reputation in the industry and is a great fit for Alpha. We expect to see strong demand in this space.”

Marc Knowles, Director and Head of ETF & Indexing Practice, added, “Investors continue to allocate assets to low cost index strategies and ETFs that deliver transparency and value for money. Asset managers recognise this and are enhancing their product ranges to deliver their investment insights through lower cost index strategies and ETFs. I believe Alpha is uniquely placed to help its clients realise their ambitions in this space.”