Retailers impacted by late payment of trade invoices, new research report finds

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Late payment of trade invoices is threatening the profits, growth and even survival prospects of small firms but few use formal procedures to tackle the problem, according to findings of a research report by the commercial credit referencing agency Graydon UK, working in partnership with the Forum of Private Business (FPB).

The survey, which canvassed the views of 500 UK small businesses, reveals 51% of companies cite the late payment of trade invoices is a problem.  Nearly a quarter (23%) of these companies subsequently indicated late payment is a serious problem, with 16% saying they have almost been put out of business as a result.

Underscoring the ‘domino effect’ of late payment down the supply chain, meanwhile, 56% of those respondents not paid on time have, in turn, been forced to pay their own suppliers late, researchers found. Further, 45% reported late payment has eroded their profits and 23% asserted it has undermined their ability to invest in growth through innovation.

Customers persisting in changing payment terms without consultation

Nearly two thirds (65%)of respondents reported customers extending their payment terms without notice or consultation. Over a quarter (27%) said suppliers had universally changed terms and conditions and 25% customers had withheld final payments without consent in order to assess the quality of work first.

In all, 23% said customers withheld payment in order to question quality or delivery times while 14% reported customers demanding discounts for prompt payment not agreed at the outset and 12% supplier credit withdrawn without notice.

Credit control procedures help tackle the late payment problem

The research shows businesses which embrace credit control procedures of some form are significantly less likely to suffer as a result of late payment, said Graydon UK. Less than half (44%), however, employ formal credit control procedures, with 38% instead relying on a mix of formal and informal processes and 16% juggling payments on an ad-hoc basis.

Only a third of companies offer prompt payment incentives, while just 30% use existing legislation to charge interest on late payers and 40% use cash flow management software. In addition, debt collection agencies are employed by 42% of respondents, 43% keep a reserve in the bank to offset late payments and invoice discounting is seen as a solution by just 26% of businesses, the research found.

The report’s findings came under the spotlight at a House of Commons summit at the end of April 2012, hosted by Graydon UK and the FPB; alongside representatives of the Government’s department of Business, Innovation and Skills (BIS), the Labour Party, the Institute of Credit Management (ICM), the Association of Certified, Chartered Accountants (ACCA) and Lloyds TSB Business.

Speaking at the event, Gordon Skaljak, external spokesperson, Graydon UK, said: “The current economic climate makes it more important than ever companies clearly understand the risks and opportunities associated with their operations. This includes identifying the cash flow and other risks triggered by the late payment of trade invoices by customers.

“Companies cannot achieve sustainable growth if they aren’t paid on time consistently. This is why having a formal credit management process based on reliable, accurate customer payment behaviour information is essential for businesses who want to transact with confidence and fulfill their sustainable growth potential.

“But while credit reference agencies such as Graydon UK are business counselors on managing this risk, the business community and the Government must join forces to protect companies by stamping out the UK’s late payment culture.”