Late payments add to cashflow woes for businesses
The British Chambers of Commerce (BCC) has released the results of a survey of more than 5,000 businesses, which found that 94% of firms have been paid late, with one in four reporting that over 40% of their payments were not received on time.
Asked of their experience of late payments, 94% of businesses report that they have been paid late. Almost one quarter (24%) of businesses reported that over 40% of payments were received late. While 37% of firms stated that firm size did not affect late payments, 34% of firms stated that larger businesses were more likely than smaller businesses to pay late, compared to 24% who stated that smaller businesses were more likely to pay late.
Almost two-thirds (62%) of businesses said that private sector businesses are the most likely to pay late, dropping to 34% for the public sector. When asked whether the economic climate had affected late payment, a third of businesses (33%) said most customers were now paying late after the downturn.
Over a third (38%) of businesses themselves admit to paying late ‘sometimes’, ‘frequently’ or ‘always’. When asked when they might pay late, a third of businesses (35%) would do so to help cashflow, and another third because they would be unable to pay suppliers until they had received payment from their own customers.
Payment terms and methods
While the terms for payment differ widely between businesses, from upfront payment to 90 days+, 70% of businesses prefer one-month (28-30 days) payment terms. However, few businesses (13%) offer discounts for early payment.
Methods of payment also differ from business to business, but 85% of businesses are paid using BACs, and 95% of businesses prefer to be paid this way. However, over two-thirds of businesses (69%) say they are typically paid by cheque. Only a fifth (20%) of businesses would like to be paid by cheque.
With so many businesses experiencing cashflow concerns and resulting payment difficulties, the businesses, the banking sector and government must work together to help cashflow throughout the supply chain. The BCC recommends the following measures:
• Introduce a kitemark scheme to promote prompt payments: By buil
ding on the Prompt Payment Code, the Department for Business, Innovation and Skills should create a standard that could be used by businesses acknowledged and regularly assessed as prompt payers.
• Encourage payments in preferred payment methods: Businesses could consider offering concessions to those customers using their preferred method. The Payments Council should reassess the case for phasing out the cheque by 2018. While many businesses still use this method of payment, it can have negative effects on other businesses’ cashflow. However any changes should only happen if businesses are not financially disadvantaged by the extra fees that can come with additional forms of payment such as internet banking transfers.
• Electronic invoicing should be used by all public sector organisations: If e-invoicing were introduced across all areas of the public sector, businesses could benefit from invoice discounting platforms, and improve cashflow.
• The government can improve access to finance with the creation of a British Business Bank: Cashflow problems experienced by businesses are exacerbated by the difficulty some have in accessing finance. For example, many firms use overdrafts to pay suppliers while awaiting payment themselves. The establishment of a British Business Bank would help many new and fast-growing companies become the UK’s future champions.
Commenting on the findings, Cheryl Smart MBE, Chief Executive of Bedfordshire Chamber of Commerce said:
“Cashflow has been a problem for many businesses since 2008, when the downturn led to many firms being unable to access working capital. Almost all businesses have experienced late payments, but more staggeringly almost a quarter claim that over 40% of payments are late. “Alongside a better lending environment for businesses, many of whom need working capital, the creation of a state-backed business bank would help many new and growing companies who have trouble getting access to finance at all.
“Businesses must also work together with the government to ensure late payments become less endemic across the supply chain. Measures such as a kitemark for prompt payers, alongside moves to encourage local government to use e-invoicing, could mean fewer businesses struggling with cashflow problems.”