By Daniel Hunter
D&B, the world's leading source of commercial information and insight on businesses, in a report published today (Thursday), revealed that based on an analysis of proprietary D&B data, the average time taken by British businesses to pay bills has improved by two days throughout 2012 to an average of fifteen-days late against agreed payment terms.
British businesses have been steadily paying bills later in recent years, from thirteen days late in 2006, peaking at seventeen days in 2011. The results suggest many businesses have adapted to operating in today’s sluggish economy and are managing their cash flow more confidently.
D&B’s data highlights the potential impact of the recently updated EU Payments Directive (Directive 2011/7/EU) that sets the basis in law for suppliers to reduce risk and protect cash flow. This legislation makes it easier for businesses to pursue payment, with debtors being forced to incur interest and pay an administration fee if they fail to pay for goods and services within 60 days for business and 30 days for public authorities.
Whilst it will help protect some businesses, the updated Directive presents new risks for companies struggling to manage their finances and pay on time, due to the potential interest liability risk.
D&B has published data for nine European markets over six years, highlighting how payment behaviour of customers can impact businesses of all sizes. The Company collates millions of monthly business payment experiences to develop Payment Scores reflecting the pace which companies pay their bills, offering insight that is used to protect against losses.
The average fifteen-day late payment times for British businesses over the past year are similar to that of France, Spain and Italy. However, this is nine days slower than Germany, which has the shortest average payment period of the countries. The payment period in Portugal is seven days longer than the UK.
Payment behaviour of businesses is influenced by many factors, including macro-economic pressures and management style within different sectors. For example, within the UK, the finance and insurance sector has the highest average payment time of seventeen days, whereas in the agricultural sector this is eleven days.
In general, payment performance across all UK sectors improved moderately over the past year with the exception of the retail sector, where payment time increased substantially to nineteen days during 2012. This is a result of the continuing economic difficulties in the UK, especially the slow improvement of the retail sector during the past year.
“Payment trends offer valuable insight into the trading performance of a business, and changes are one of the earliest signals of financial difficulty or potential failure," Corinne Saunders, President Dun and Bradstreet Europe & Worldwide Network, said.
"Whilst we’re unlikely to see an increase in litigation as a result of the updated Payments Directive, it should encourage businesses to take a fresh look at their payment behaviour and that of their customers. It will also put pressure on large businesses in sectors where extended payment terms have been used as a means to protect margins, often putting smaller suppliers under increasing pressure.”
D&B suggests three key steps to help businesses manage payments effectively:
- Actively monitor payment activity to improve cash flow, which is increasingly important at a time when credit is more difficult to secure in a post-recession economy;
- Frequently review payment behaviour across the customer base to take advantages of opportunities to reduce risk by addressing the subject of delayed payments or tightening terms and conditions of contracts on renewal;
- For exporters, make active use of information on payment behaviours outside the UK to customize terms to new customers in order to protect against unnecessary risk.
“There has been a noticeable shift in the response of British businesses to the issue of payments in recent months, with the updated EU Directive and various government initiatives bringing the late payment debate out into the open," Philip King, CEO, Institute of Credit Management said.
"We have seen that smaller businesses want to learn about best practice and an increase in larger firms signing the Prompt Payment Code as their commitment to paying suppliers within agreed terms that are fair and reasonable. British businesses must adopt best practice in this area to maintain competitiveness and we hope the Directive will encourage paying on time as the norm, rather than the exception.”
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