According to a recent study, more than half of companies in the UK (53%) say the payment terms that they offer to customers are too generous and are harming them as a business. The wider European average is 45%.
At the same time, 51% of UK companies say they pay their suppliers later than they would ever accept from their own customers, although 60% are taking steps to ensure they are better at paying their suppliers on time.
The study by credit management service provider Intrum also found that more than half (55%) of UK respondents expect the risk of late payments to rise during 2022, primarily driven by inflation. They increasingly see late payments as a major stumbling block to growth.
Businesses also report that they are being asked to accept longer payment terms than they are comfortable with, which they are doing to preserve client relationships and to avoid the risk of bankruptcy.
The biggest offenders in this area are large businesses/multinational corporations; 67% of UK respondents say they’d been asked for longer payment terms than they felt comfortable with by these clients, compared with 47% for SMEs and 15% of public sector organisations.
“The figures raise questions about whether policy efforts to improve big business payment behaviour are filtering through in practice,” the report says.
Late payments are stymieing growth in almost half of UK businesses (47%). However, many are floundering when it comes to dealing with this problem. Businesses appear to be taking a limited number of actions and precautions to ensure they are paid on time by struggling customers, while almost eight in 10 (77%) flag that late payments are problematic.
The most common actions taken when customers ask for longer payment terms are to offer a discount or agree to revised payment terms. However, businesses are increasingly asking for pre-payment from customers as a precaution – almost half (48%) do this, up from 26% in 2020.
Almost two in three respondents (65%) have significantly accelerated their efforts to improve their environmental performance over the past 12 months, with customer demand and climate risk seen as key drivers of this activity.
But when it comes to the social aspects of environmental, social and governance (ESG), the findings present a more mixed picture, especially when they relate to payment practices and back-office efficiency. Although a growing number of respondents are aware of the negative impact of late payments on small businesses, 51% say that they pay their suppliers later than they would accept from their own customers. This is much higher than the previous year’s figure of 27%.
Respondents also indicate that they have become less likely, over the past year, to accept longer payment terms from SMEs.
With respect to governance, 50% expect to see more scrutiny around customer discrimination in the years to come. The same proportion, however, admit that they don’t know for sure whether their own sales teams are discriminating against customers in ways that are unethical, such as on racial or social profiling.
“Respondents may be enhancing their environmental performance, but we see room for improvement in their approach to the social and governance aspect of ESG, with payments seen as a trust builder and potential catalyst for businesses to invest in sustainability efforts,” says Eddie Nott, managing director of Intrum UK.
At the same time, another survey has found that a majority of European SMEs have been forced to take out a loan due to missing payments. According to banking-as-a-service provider Vodeno, more than half (52%) of the SMEs surveyed have failed to meet commitments due to slow payment processing, while even more (54%) have been forced to take out a loan as a result of missing payments that caused a disruption to cash flow.
Vodeno’s research found that the majority (62%) reported delayed and unpredictable cash flow as the biggest challenge their business currently faces. The same number (62%) said that costly FX rate fluctuations contribute to a significant drain on their resources.
Looking ahead, the vast majority (68%) intend to adopt real-time payment processing capabilities in the next 12 months, with 62% saying their SME must urgently modernise its payment processing capabilities.
Tom Bentley, CCO of Vodeno, said: “Long settlement times, delayed transactions and a lack of transparency in the payments space can cause headaches for businesses – particularly small and medium enterprises who typically have fewer reserves to draw upon when disruptions occur. Our research shows that these organisations rank missing payments among their most significant challenges, with many taking drastic measures to stay afloat.
“In the current macroeconomic climate, cash flow can mean the difference between survival and insolvency, and unpredictable payment processing is the single biggest disruption to business operations.”
Philip Smith is editor of The Treasurer