The world of UK business is a difficult one, in 2014 alone there were 39,085 companies that entered insolvency. With business failures averaging 752 a week across all industries, late payments are becoming an ever increasing trend with statistics stating that the average UK business spends over 130 hours a year chasing invoices.
The UK has taken a major hit thanks to late payments; with the industry most affected being ‘Manufacture of men’s underwear’. This has then created a knock on effect on the industry’s own bills, causing them to pay late. They have one of the longest average days beyond terms (DBT) in the UK, paying their bills 42 days after their initial term. Other industries that prolong their payment terms are ‘Life reinsurance,’ averaging at 41 days beyond term, ‘Deep coal mines’ averaging at 39 days beyond term, and the ‘Growing of fibre crops’ averaging at 32 days beyond term. With all these industries paying their bills late, they are then potentially causing their suppliers to pay their own bills late, forcing the economy to suffer due to late payments. All is not lost though; there are ways to encourage your customers to pay you on time, even if you are dealing with a bad paying industry. See our blog post on ‘How to get paid on time’, for tips on how to get money coming into your business sooner rather than later.
Another factor to consider when it comes to late payments is where you are doing business in the UK. Believe it or not, different regions pay you at different times, and whether you are paid on time or not could be affected by the location in which you are trading. Our research suggests that the South West and South East regions are the fastest paying regions in the UK, with their average DBT being 14 days. The North East and Scotland follow closely behind with their average DBT being 15 days, and quite worryingly, Greater London (the business hub of the UK) has an average DBT of 16 days beyond terms, just one day below the slowest paying regions in the UK. Therefore if the average invoice term is 30 days, 20% of businesses in the UK (that are from Greater London) will pay you on average, 46 days from the invoice being issued. Unfortunately, this trend then continues with late payments having a knock on effect throughout the UK.
It’s important to note that sometimes it’s not businesses deliberately paying you late just to keep their own cashflow afloat and money in their bank accounts; it’s their customers paying them late, which in turn forces them to pay their bills late. The vicious cycle continues to circle and more and more businesses become insolvent because of it. A way to break the cycle would be to work on strengthening your cashflow and allow forecasting for late payments. This will help you pay your bills on time, which will raise your credit rating, encourage more new business and hopefully allow you to deal with more creditworthy companies who will endure to pay you on time. For tips on how to improve your cashflow, read our blog post.
Wales is one of the slowest payers among all the 9 regions of the UK, with an average DBT of 17 and over 22,000 businesses registered within it. The West Midlands also has a DBT of 17, and has almost double the amount of businesses in Wales, with the amount coming to over 56,000. So, in total, the 2 worst paying regions in the UK make up 12% of all the UK companies (78,482 companies)- all paying late. In fact, every business in the UK pays past their initial term, with the minimum delay being 2 days beyond terms in industries such as ‘Space Transport’ and ‘Public order and safety activities’.
Late payments are hard to avoid, and unfortunately most businesses deal with them, but there are some ways to escape massive damage to your business in the result of late payments. Credit checking is becoming a vital tool in all industries; you can check a company’s payment behaviour before you deal with them, thanks to trade payment data in the reports. Creditsafe has a Trade Payment Data programme with over 6,000 contributors, sharing information on how real companies pay their bills in real time. A credit report will show you how many days beyond terms it takes a company to pay their bills, and you can compare it to their industry average. A Creditsafe company credit report can also show you if a company is getting better or worse at paying their bills, so you can decide if you are prepared to deal with them before you sign any contracts.
Having this type of information before you make any decisions regarding new business is crucial in the cutting world of business today, get a free trial of our system and see how we can help you in your due diligence process to keep your company stable.
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