By Kristy Dorsey

The enduring problem of late payments is on the rise with a third of Scottish business owners saying overdue amounts increased in the final quarter of last year.

The Federation of Small Businesses (FSB) said 12 per cent of those in its latest regular Scottish survey warned that late payments are threatening to shut them down. Overall confidence dropped to -22.0 points, down from a positive reading of 1.2 points in the previous three months.

The findings echo those from a separate survey from banking group Barclays, which found that 72% of small and medium-sized business (SMEs) in Scotland are currently waiting on money tied up in unpaid invoices. This was significantly higher than the UK average of 58%.

The problem has been exacerbated by the pandemic, Barclays said, with 40% of SMEs saying they’re more likely to experience delinquent payments because of the health and ensuing economic crisis.

READ MORE: Scottish economic recovery 'clearly at risk' with threats on multiple fronts

The increase in overdue payment levels comes as firms also grapple with rising costs, continuing public health restrictions, and servicing debts on emergency loans taken out to see them through various stages of lockdown.

Mairi Spowage, director of the Fraser of Allander Institute, noted that cash flow problems have been particularly acute for businesses north of the Border.

“Obviously the restrictions have been slightly different in Scotland compared to the rest of the UK,” she said. “There is also evidence that in aggregate perhaps the Scottish economy is recovering slightly less well.”

The FSB said latest government statistics show an estimated 338,000 SMEs operating in Scotland, a figure which fell by almost 20,000 in the first year of the pandemic. Its survey of more than 1,200 small business owners was conducted between December 2 and December 13, covering the period on December 10 when First Minister Nicola Sturgeon urged workers to cancel Christmas parties and outlined plans to renew Covid restrictions.

Ms Sturgeon is due to give a further update today amid calls to end virtually all Covid restrictions as case numbers have halved in a week. Limits on large outdoor events were scrapped as of yesterday following last week’s update from the First Minister.

Andrew McRae, the FSB’s policy chair for Scotland, said thousands of businesses “needlessly go under” every year because of late payments.

READ MORE: Warning to keep small firms 'in the game'

“That’s why every UK big business should have a non-executive director on its board with direct responsibility for payment culture,” he said. “That’s also why FSB backs moves to beef up the powers of the Small Business Commissioner to take on the worst offenders.”

Mr McRae added that the latest research shows firms are “deeply worried” about the future.

“The prospect of new public health restrictions at the end of last year not only snuffed out optimism of many Scottish independent retail, hospitality and tourism businesses but also hurt their supply chains,” he said.

“As the Scottish Government looks to the future, ministers must focus on local economies as well as public services. The economic impact of the virus and the associated restrictions has taken a disproportionate toll on our small business community.”

Ms Spowage said consumer confidence is a further concern as angst increases about the surging cost of living. And though business sentiment readings are often more extreme than actual changes in economic output – both positive and negative – it is still “very important”.

“If confidence is dented in businesses then they are less likely to invest because they feel more uncertain about the future,” she said, “and obviously business investment and investment in technology and new processes is ultimately what is needed for the economy to grow and become more productive.”