The prize no business wishes to win – which industry has the longest payment terms?

The prize no business wishes to win – which industry has the longest payment terms?

#Cashflow. It’s a word that you as a #SME business is likely encounter more frequently than your own company name. It’s the ship upon which your business sails, and if it’s not managed correctly, it’ll be the ship on which your business sinks.

Which is frustrating, of course, because chances are you’re doing everything you can to manage your #Cashflow – the problem more than likely stems from your clients’ payment terms (or lack of them).

Typical payment terms
Over half (55%) of British #SMEs have been asked to accept longer payment terms than they feel comfortable with, up from 37% in 2016. This means more than half of Britain’s #SMEs are currently waiting for overdue bills to be paid, with a whopping £44.6bn in late payments outstanding. More than one in five firms is owed more than £25,000 while almost one in 10 companies are owed more than £100,000.

So instead of being able to reinvest this back in their businesses, #SMEs have no choice but to twiddle their thumbs while they wait their clients to cough up (or waste valuable manpower chasing invoices). One in six is still waiting after 90 days, and half of these companies are still waiting six months later!

Naturally, the consequences can be significant. As many as 50,000 small businesses going into Insolvency each year because of payment delays and impacting the lives of the local community by making workforce redundant and may even have a knock on event to other supply chain.

The late payment terms
Who’s to blame? Unsurprisingly, it’s big business (smaller businesses are obviously much more respectful of #Cashflow woe). According to recent research, companies with one or two employees settled bills 20 days beyond terms compared to large corporations with 500 or more staff, which take 34 days. Of course, 20 days beyond terms still isn’t particularly helpful when you’re running a tight ship.

The very worst offender, according to some figures, is the enterprise management industry (accountants and auditors, for example), which take an eye-watering 125 days to settle their payments. The postal and telecommunications industry takes an average of 44 days beyond terms, while supermarkets take 33 days and building and construction companies around 21 days.

Even the ‘best’-performing sector, the agriculture, and forestry and fishing industry, takes an average of nine days beyond terms to settle up. That’s still nine days spent out of pocket.

And these findings come against a backdrop of legislation designed to help SMEs avoid these very issues. The European Union’s Late Payment Directive gives SMEs the right to compensation when bills are paid late, but if you’re dependent on a client you’re probably not going to threaten them with legal action, are you?

Then there’s the Prompt Payment Code (PPC), a voluntary scheme for larger companies to commit to paying suppliers on time. Despite nearly 2,000 businesses signing up it’s not made that much of a difference to the late payment palaver faced by SMEs every day. Just look at the list of blue chip companies on the Forum of Private Business’s Hall of Shame. The multinational GlaxoSmithKline, for example, has increased supplier payment times from 60 days to as many as 95, but its name still appears on the PPC list!

Payment on your terms
So what are SMEs to do? It’s not something you can ignore – the growth of your business depends on it, after all.

Traditionally, a small business might turn to the banks for help, perhaps for a loan or overdraft extension. But with increasing charges for such things, not to mention the growing economic uncertainty that seems to follow the UK around like a bad smell, that’s no longer a business-savvy idea.

Instead, growing numbers of SMEs are turning to selective invoice finance to secure reliable #Cashflow. Alternative finance houses such as Global Asset Finance Limited and Partners are playing a vital role in supporting SMEs just like yours, helping them deal with the headache of late payments by stabilising their #Cashflow.

Simply raise an invoice and get paid promptly – just as you should. Big business, if you’re listening: it’s not rocket science!

Categories: Invoice Finance Services