The cost of late payments: How cashflow struggles ripple through the economy

Less than half of suppliers are paid on time. These late payments don’t just hurt individual businesses – they’re harming the economy.

Late payments don’t just harm individual suppliers; they impact whole industries, slowing growth, blocking up supply chains and even impacting jobs and pay. Yet despite these wide-reaching consequences, the problem persists — 51% of suppliers report frequent late payment, with 20% experiencing delays of more than 30 days.

While larger businesses may have the financial resilience to absorb delayed payments, small suppliers feel the impact even more acutely. Almost half (49%) of the respondents in SAP Taulia’s latest annual Supplier Survey were small businesses with revenues under $10 million. For many of these smaller suppliers, late payments can determine survival.

The growing burden of late payments

Less than half (41%) of suppliers say their buyers typically pay on time, a figure that has remained unchanged from last year but is a steep decline from the 54% who reported as such in 2019. Worse still, some buyers habitually pay well beyond due dates – 20% of suppliers reported that payments are typically delayed by over 30 days, and 7% experienced typical delays exceeding 45 days. Only 3% of buyers pay early, offering rare relief in an otherwise cashflow-challenged landscape.

There are many reasons why buyers may pay late – errors in an invoice, inefficient systems, or their own financial challenges are just a few. But while these delays may be understandable, they still create significant challenges for suppliers, especially smaller businesses that depend on timely payments to operate and grow.

Beyond those individual suppliers, late payments have knock-on effects on supply chains, business relationships and ultimately the broader economy. Creating a payments environment where both buyers and suppliers can succeed means finding solutions that work for both sides.

How late payments impact the economy

When suppliers can’t count on being paid on time, the financial uncertainty trickles down through the entire supply chain. Here are some of the impacts:

• Cashflow crunch. For suppliers, a missed or delayed payment can mean difficulty in restocking inventory, covering operational expenses and payroll, or servicing debts. In extreme cases, and especially for small businesses, these can make it difficult for the supplier to keep operating.
• Strained business relationships. Repeated late payments can damage a buyer’s credibility, making suppliers hesitant to enter into future agreements or causing them to enforce stricter terms.
• Supply chain disruptions: A supplier experiencing financial strain due to unpaid invoices may struggle to fulfil orders, leading to delays further up the supply chain. This can cause production slowdowns and shortages.
• Job losses: When businesses can’t maintain healthy cashflow, they are less likely to hire new employees and invest in innovation, and may even struggle to make payroll.

None of this is good news for the economy. Late payments cost the global economy $1 trillion annually, according to the European Commission, while a 2021 survey by QuickBooks found that mid-sized businesses in the US were owed an average of $300,000 in late payments, with 89% saying these were holding back growth. For small businesses, the threat can be existential – a report published in 2016 by the UK’s Federation of Small Businesses said that 50,000 companies would have avoided going out of business in 2014 if they had been paid on time.

Stopping late payments

Evidently, buyers and suppliers alike need payment solutions.

Many suppliers are turning to early payments to help mitigate the impacts of slow-paying customers, with nearly two-thirds (63%) of respondents in our Supplier Survey expressing interest in doing so. For small businesses, reliance is even more pronounced – 70% of respondents with revenues under $10 million reported using an early payment solution in the past year.

Early payments provide a practical solution by offering suppliers quicker access to funds they are already owed. Importantly, early payment solutions work in favor of both suppliers and buyers: suppliers get access to working capital when they need it, while buyers benefit from strengthening their supply chains and securing early payment discounts.

The SAP Taulia Supplier Survey analyses responses from more than 9000 businesses across 129 countries. For more insights, read the full report