REVEALED: New reports expose big businesses’ payment practices
08/01/2018 / Comments 0
Most big businesses in the UK take more than 30 days to pay their suppliers, according to new payment reports.
New rules came into force in April 2017 which require all large businesses to report twice a year on their payment practices and performance in a bid to increase transparency for suppliers and encourage the worst offenders to clean up their acts.
More than 300 of these reports have now been filed*, which revealed that only 30% of big businesses pay within 30 days on average, with the average term reaching as high as 113 days.
The filings also showed that only half of invoices overall are paid within 30 days.
What’s more concerning is that, on average, 30% of invoices are not paid within agreed terms, with some businesses admitting to paying as many as 96% of invoices late. This means that other businesses are forced to wait longer than anticipated for payment which can put significant strain on cash flow and hinder growth.
Smaller businesses often bear the brunt of this behaviour, with £14.2 billion of late payment debt currently owed to SMEs, according to Bacs Payment Schemes.
However, whilst the data confirms that some large businesses are continuing to apply poor payment practices, it is promising to see that others are committing to pay on time, with the shortest average time to pay at just 5 days.
Yet, only 3% of businesses with qualifying contracts paid all of their invoices within agreed terms.
Top 5 businesses (by proportion of invoices not paid within agreed terms)
- Slater Menswear – 0%
- Gardiner & Theobald Fairway Limited – 0%
- Smith & Williamson Investment Management Llp – 0%
- T & E Ferris Limited – 0%
- Macfarlanes Services Limited – 0%
Bottom 5 businesses (by proportion of invoices not paid within agreed terms)
- Grainger & Worrall Engineering Limited – 96%
- Parts Alliance Group Limited – 95%
- Grainger & Worrall Machining Limited – 93%
- Ashtead Plant Hire Company Limited – 92%
- W & J Linney Limited – 92%
NOTE: Some businesses are yet to file their payment reports so these tables could change
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For reporting purposes, a large business is classed as a company or limited liability partnership that has at least two of the following: £36 million in turnover, £18 million on its balance sheet or 250 employees.
Under the new rules they are required to report on each of the following measurements of their payment performance:
- The average number of days it has taken the business to pay invoices during the previous reporting period
- What proportion of payments weren’t paid within the contractual payment period
- The proportion of payments made within 30 days, 31-60 days and over 60 days
- What their standard payment terms are in days
- Whether the business charges suppliers to be on its supplier list (known as ‘pay to stay’)
It is hoped that this information will give suppliers more insight into the businesses they are considering selling to.
It will be classed as a criminal offence for the company and directors should any qualifying business breach the reporting requirements, whether they fail to publish the report on time or they do so in a misleading, false or deceptive manner.
But, only time will tell if this is enough to protect small businesses from being stung by late payment and encourage large businesses to clean up their acts.
Late payment crackdown “must be top of domestic agenda for 2018”
These new reporting regulations show that the government is finally taking the issue of late payment seriously and doing what it can to create a more transparent climate for smaller businesses to benefit from.
But business leaders feel that there is still more to be done.
In his New Year message, Mike Cherry, National Chairman of the Federation of Small Businesses (FSB), called on the Government and its new Small Business Commissioner to put tackling the UK’s late payment culture at the top of its domestic agenda for 2018.
He said: “Brexit will no doubt continue to grab headlines as we enter the New Year but it’s vital we don’t lose sight of the domestic issues impacting our 5.7 million small businesses and self-employed every day.
“The coming weeks and months will be a crucial time for the Small Business Commissioner and his team to start making a real difference to firms impacted by the debilitating late and poor payments crisis across the UK.
“An estimated £18bn is held up in poor and late payments. This needs to change. Just like everyone else, small businesses deserve to be paid promptly and should not face supply chain bullying.
“We want to see the worst offenders tackled and then named and shamed if they do not improve.”
Using the payment reports to protect your business
Whilst more Government action on the UK’s late payment culture would be welcomed, the onus is very much still on businesses to take action to protect themselves from the perils of late payment.
No matter what size the business you are trading with, it’s good practice to get to know them before offering credit terms.
Performing a credit check will allow you to see if the customer has a bad track record of payments and highlight any red flags that might mean they can’t or won’t pay you.
And, if you are dealing with larger businesses who are required to report under the new law, going forward it will be good practice to check their reports to see what their payment practices are like.
You can access the reports here, where you will be able to see the average time it takes for a large business to pay its suppliers and the proportion of payments that it doesn’t pay on time.
This will allow you to make an informed decision about whether or not you should offer credit terms or if you need to take extra measures to ensure that you are paid on time.
Take a look at our credit control tips section for more details on how to improve your credit management to protect your cash flow from late payment.
If you’re finding it difficult to collect payment from large businesses we could help. As a leading debt collection agency, we have extensive experience in dealing with big businesses and getting the desired results. Contact us today on 0800 9774848 to see how we could assist.
*At the time of analysis there were 302 reports available, of which 267 had entered into qualifying contracts in the reporting period.