Late Payment Power Struggle Intensifies

New research from Experian, the global information solutions company, reveals that there has been an increase in the time it takes UK companies to pay their bills. UK companies are now taking longer to pay their bills than at any time since legislation to combat late payment was introduced in 1998.

Overall, businesses are taking more than two months – 61.07 days – to pay their bills, an increase of almost two days since November 2006 – the greatest rise since records began in 1998. Large companies are now taking 81.5 days to pay their bills, 21.2 days more than small companies. Medium-sized companies are now taking 61.3 days – one day more than they did six months previously – whilst small companies are taking two more days, at 60.2 days. Experian’s findings are based on the payment patterns of more than 435,000 companies.

Jo Howard, Marketing Director of Experian’s Business Information division, said: “Information on how long it takes for businesses to pay their bills is very powerful and is a great asset for improving business efficiency.

“Businesses need to be increasingly cautious about trading with companies that have a poor or erratic payment performance record. More alert companies are more likely to take steps to screen out poor performers from their new business activity and check for default or late payment amongst new and existing customers so they know who they are dealing with and are forewarned of any potential problems.

“At the same time, they might be trading with a very creditworthy and sound business that has a culture of late payment. It pays its bills, but traditionally later than its peers in its industry. Here, a business can be prepared for late payment or take steps to change its payment terms to encourage faster payment or develop more creative collection strategies.”

The slowest paying industry overall is the Electricity industry, which takes an average of 72.1 days to pay its bills – an increase of 7.5 days on six months earlier. This is the highest increase of all the industries over the six month period. Small companies in this sector increased by five days, medium-sized companies were up 13 days and large companies increased by 10 days.

The Property industry is placed second among the slowest paying industries, taking 70.2 days to pay its bills – an increase of 5.6 days – the second highest overall increase. Both medium-sized and large companies within this sector increased by nine days. Small companies increased the time they take to pay their bills by five days.

The Agriculture, Fishery & Forestry industry has yet again shown itself to be the most prompt at paying its bills, taking on average 54 days – an increase of 1.8 days. The Timber and Construction industries also fared well, coming in second and third place for promptness.

Out of the 29 industries analysed, only two (Paper down 1.05 days and the Timber industry, down 0.02 days) reduced the average number of days they take to pay their bills. Of the 27 industries that increased the number of days, the highest overall increase was the Electricity sector (up 7.5 days), followed by the Property industry (up 5.6 days) and the Beers, Wine and Spirits industry (up 4.2 days.)

Taking size into account, large companies in 15 sectors increased the time it takes to pay their bills, with Electricity and Property increasing the most by 10 and nine days respectively. In contrast, large companies in 10 industries improved their payment record, the best improvement coming from the Financial Services industry (down 10 days). Motor Vehicles and the Gas industry both improved by seven days.

Out of all the medium-sized businesses, the Oils and Paper industries showed the biggest improvements, at five days. In total, five industries remained the same and 18 increased the time it takes to pay, with the Electricity industry increasing the most (13 days).

Among small companies, only the Paper industry reduced the time it takes to pay its bills, by one day. Only one industry, Timber, remained the same. 27 industries increased, with Electricity, Property, Pharmaceuticals, Beers, Wine and Spirits, Oils and Gas all increasing the most – by five days.

Jo Howard concludes: “Data on how fast companies pay their invoices is a valuable early warning indicator of cashflow problems. Those running businesses need to be aware that the longer the payment period is, the more money they have outstanding that could be lost. As a result, many companies are pressing harder to be paid on time. But, at the same time, many companies are under pressure to hold on to cash as long as possible, leading to an inevitable power struggle.

“Of course, many companies, whether they are large, medium or small, are very diligent about paying their invoices within the terms agreed with their suppliers. But there is still a hardcore that clings stubbornly to the culture of late payment of invoices and the latest figures indicate that this is getting worse.

“Companies seem to be happier to accept longer payment terms when business is going well, but will take a tougher stance when they begin to feel the pinch. There may be an upcoming battle between the two forces, as companies seek to retain more cash and slow payments in the face of higher interest payments while suppliers seeing lower levels of growth will be less prepared to accept extended payment terms. It is intriguing to see where the power shift lies. The late payment battle is far from over and we predict very interesting times ahead.”

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