The changing face of late payment has lead to nearly half of companies saying that they were lucky to have survived 2020. This is according to new research by Intrum.
The research as part of Intrum’s sixth UK edition of the European Payment Report 2021 also found that companies have also taken the opportunity to tighten payment terms and focus on liquidity. However, most businesses admit that they rarely think about the impact of their own late payments on small firms.
Cash flows and revenues have proved more resilient to the pandemic than expected, according to a third (34 per cent) of UK businesses. This is above the European average. However, UK firms were also more likely than their European counterparts to have made redundancies – with one in five doing so.
More than half of UK firms (55 per cent) say the pandemic has motivated them to get better at managing the risk of late payments in their business. The report shows that businesses have tried to cut payment times and become stricter about their payment terms to customers. In 2021, 50 per cent said they had accepted longer payment terms than they are comfortable with in order to protect the customer relationship – although high, this is down from 80 per cent in 2020.
The payment gap (the gap between agreed terms and the actual time taken to pay) has also narrowed across all customers types, falling from ten days to eight for consumers, 19-12 days for B2B customers and 23-11 days for the public sector. The pandemic has clearly focused minds on late payment – 56 per cent said it has increased their awareness of the impact this has on small businesses.
However, it is not clear that his will create lasting change, and almost two-thirds (62 per cent) are more concerned than ever before about their customers’ ability to pay, predicting that the risk of late payments will increase over the next 12 months. In addition, 46 per cent believe the payment gap is a real risk to the sustainable growth of their business.
The consequences of late payment are several. In the UK, 41 per cent of SMEs and 46 per cent of larger businesses said late payment reduces their ability to hire new employees, while 72 per cent said faster payments would enable them to increase investment in sustainability and digital innovation.
Yet there is evidence that businesses are failing to clean up their own payment practices. Only a third (33 per cent) said they have a code of ethics in place to encourage prompt payment, down from 48 per cent in 2020. This is despite the fact that two-thirds of UK firms (67 per cent) said large businesses have a responsibility to pay smaller companies on time.
More than a quarter (27 per cent) said they pay their suppliers later than they would ever accept from their own customers and 61 per cent said they rarely think about the impact of late payment on smaller firms.
Economic recovery depends on responsible payments handling, sound credit management, and access to a level playing field. Sustainable cash flows and long-term profitability are more important than ever before in order to allow for companies to grasp the significant growth potential that they see on the horizon.
Eddie Nott, UK Managing Director, Intrum. said “With government support key to business survival, many firms acknowledge that they are lucky to have survived 2020. However, there are positives – for example, 37 per cent of SMEs say the pandemic has accelerated the digitalisation of their business. Across the board, companies have focused on cash flow and liquidity – tightening up on poor payment behaviour from their customers. Late payment is a societal issue. There has been some progress, but it remains to be seen if this will translate into long-term change.”