• Henrik

B2B payments: the human factor

It seems fair to assume that many invoices are paid late due to a shortage of cashflow, in line with the theory that businesses act rationally. However businesses are run by people and therefore there are many human factors that may contribute to late payments.

SMEs by definition have less staff and so payments are often handled by the owner or management as a side task. As a result, a lot of late payments are in fact due to old-fashioned forgetfulness, a lack of time or an aversion to admin. Most entrepreneurs would rather be selling or dealing with customers than inputting invoices on their laptop.

On the other hand, larger companies often have teams of people whose sole role is the payment of invoices, yet the evidence suggests that larger companies pay even later than smaller ones. One can therefore assume this may be driven by a deliberate corporate culture to pay suppliers late.

While being a little bit late paying an invoice does not usually lead to any direct negative consequences for the payer other than the rare late invoicing fee, it does have an impact on the vendor. Firstly, the late payment of invoices disrupts the vendor’s ability to properly manage their cashflow: if you don’t know when or if you're getting paid, it's naturally difficult to know when you yourself can pay your suppliers. One late invoice can therefore trigger a domino effect of unwanted late payments throughout the supply chain. Secondly, because cashflow is the lifeblood of business, it is also likely to impact the survival of companies themselves.

The impact of late payments on SMEs is something that EU looks at very closely. Given the importance of SMEs in the European economy, where 99% of business are SMEs, it is no surprise that they have therefore taken the initiative to address the issue through both legislative and non-legislative initiatives. In order to make sure that businesses pay in time, the EU has implemented the Late Payment Directive (2011/7/EU) which affords rights to companies that do not get paid within a certain amount of time, as well as offering a statutory late payment interest rate of 8%. Even so, it is clear from a recent regulatory review by the European Parliament, that there are still too many unpaid invoices in the EU as a whole.

For example, here are a few worrying facts sourced from the European Parliament Resolution from January 2019 on the implementation of the Directive on combating late payment in commercial transactions:

  • 6 out of 10 businesses in the EU are still paid later in B2B transactions than what was agreed in the contract;

  • For 58% of the respondents in Western Europe, late payments from B2B customers had a significant impact on their business;

  • Pan-European research shows that 6.5 million jobs could have been created if there was less late payment in 2017 and 8 million jobs in 2016;

  • Even if there is a statutory interest rate applicable to late invoices, few businesses actually enforce this, as their continued business rely on good relations with their customers;

  • Late payment accounts for 1 in 4 bankruptcies in the EU.

As mentioned in the Parliament's resolution there is evidence that larger companies, including state companies, generally pay later than smaller companies. While there might be a natural tendency for larger companies to be financially stronger than smaller ones, and are therefore a lower credit risk justifying longer payment terms, it's safe to say that there may also be some abuse of dominance. For example, the day Carillion went under, it left behind 30,000 unpaid suppliers, mostly small businesses.

The late payment phenomena also impacts wider society and job growth, where 8% of SMEs in the UK state that they cannot hire new staff due to late payments. In France it is estimated that SMEs could create 100,000 jobs if all companies paid on time. Furthermore, a challenger bank in the UK revealed that the average UK SME is chasing five outstanding invoices at any one time.

Source: Intrum

Given the importance of a well-functioning SME market for the EU, the European parliament has encouraged member states to do much more, such as national legislation to introduce stricter controls, the use of administrative sanctions that are effective, proportionate and dissuasive, as well as the mandatory publication of information on payment behaviour through databases or national registers. Some countries, such as Belgium and Germany, have already implemented stricter rules when it comes to non-contractual payments, which are required to be paid within 30 days.


At Yoba, we see a clear case for helping SMEs deal with their invoices in a better way and are targeting this problem as one of our main focus areas. Small businesses have been under-served – and undervalued – for too long and it is time to address this problem for the benefit of all. We look forward to telling you more about how we plan to achieve this in the near future.

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