UK businesses on late payment merry-go-round

According to the study carried out by Bibby Financial, a third of UK businesses surveyed reported that they had been forced to accept extended payment terms from customers during the past 12 months. As a result, businesses are in turn squeezing their own suppliers to bridge the resulting cash flow gap with 36 per cent asking suppliers to wait longer for their invoices to be settled.

However, with the delayed European Late Payment Directive due to come in to force on March 16th 2013, businesses have just 12 months to clean up their act and get payments under control in line with the new regulations.

Designed to protect businesses by capping maximum contractual payment periods at 60 days, firms that have agreed longer terms with suppliers to offset the delay in customer payments are in danger of non-compliance as they struggle to bring payment cycles within the legal requirements.

In fact, the research found when it comes to payment cycles, one in five firms offer payment terms beyond 60 days on their invoices as matter of course. And with 39 per cent typically having to wait at least a month beyond agreed payment terms to get paid, businesses are putting themselves under real pressure when it comes to balancing the books.

Commenting on the research, Edward Winterton, executive director at Bibby Financial Services, says: “Over and above the need to clean up their act with the Late Payment Directive on the horizon, taking a ‘rob Peter to pay Paul’ approach to late payment is not good business practice when it comes to managing cash flow.

“Despite 37 per cent of the businesses we spoke to agreeing that extended payment terms have had a negative effect on their cash flow management, unfortunately, many firms feel they have no choice but to join the late payment merry-go-round as they struggle to keep customers happy and treat suppliers fairly.”

Interestingly, there appears to be a clear North-South divide in dealing with the late payment problem: between firms in the North forced to extend payment terms from customers over the last year, and those in the South who have continued with the same agreements.

More businesses in the North West, North East, Yorkshire and Humberside and East Midlands have had to wait longer for payment compared to those in the South West, South East and East Anglia.