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Late payments still an issue for UK SMEs

Tuesday 10 December 2019 13:43 CET | News

The latest MarketFinance Business Insights has shown how long SMEs are waiting to be paid, how late these payments were and the impact.

 

Analysis conducted in December 2019 reviewed 100,205 invoices raised by UK SMEs between 2013 and 2019 to a range of businesses across the UK and to 93 countries. 

The analysis suggests that businesses typically agree 45-day payment terms from completion of work or delivery of goods. Despite this, almost two-fifths (39%) of invoices issued in 2019 (worth over GBP 34b) were paid late, an improvement on 2018 when 43% of invoices were paid late.

However, the number of days an invoice was paid late in 2019 has doubled to 23 days from 12 days in 2018. Invoices paid late were typically larger in value (GBP 34,286) than those paid on time (GBP 24,624).

Long payment vs Late payment 

There is a distinct difference between these terms. Long payment terms refer to the time contractually agreed between parties when invoices will be settled for goods and services provided. Whilst sometimes lengthy, they are a reality of doing business. Businesses can plan to cover these cash flow gaps and manage their working capital using either cash reserves or finance tools like invoice finance.

Late payment refers to the additional time taken to settle invoices, outside of those contractually agreed at the point of purchase. This is an unknown and unexpected element which can significantly impact cash flow, business plans and even in some cases paying staff or creditors.

Key insights 
  • The number of invoices with long payments terms (anywhere between 60 and 120 days) being paid late almost doubled between 2013 and 2019. Rising from 13% being paid late in 2013 to 23% in 2019.
  • Over the 6-year period, analysis found that larger debtors insisted on longer payment terms (49 days) than smaller debtors (37 days). In addition, when invoices were paid late, these larger debtors also settled much later (94 days) compared to smaller debtors (42 days)

Sectors

Professional and legal services businesses suffered the most with late payment in 2019. Seven in ten (70%) of invoices were paid late, up from 30% in 2018. Manufacturers (57%), retailers (49%) and creative industries businesses were also heavily impacted by late payment of invoices. Interestingly, late payment practices improved for companies working in the utilities and energy sector with only a third (34% of invoices being paid late in 2019 compared to two-thirds (66%) in 2018.

Regions 

The number of invoices paid late to companies by region was fairly evenly split. Notably, businesses based in the South East (56%) and Northern Ireland (55%) had the highest number of invoices paid late in 2019 and late payment practices worsened from the previous year.

The biggest improvements 2018 vs 2019 in late payment practices were in North West (63% vs 37%), North East (60% vs 40%), Scotland (62% vs 38%) and the South West (61% vs 39%). Additionally, businesses in the North East (25 days vs 11 days) and South West (33 days vs 10 days) had more than halved the number of days an invoice was paid late.

Countries 

The analysis looked at invoices sent to 47 countries by UK businesses. US companies were the worst late payers, taking an extra 51 days to settle invoices from agreed terms in 2019. German firms took a further 32 days and businesses in China took an additional 10 days. Interestingly, French, Spanish and Italian businesses halved the number of days they paid late from 24 days late in 2018 to 12 days in 2019.



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Keywords: Late payments, UK, SMEs, MarketFinance, payments
Categories: Banking & Fintech | Payments General
Countries: United Kingdom
This article is part of category

Banking & Fintech