Late Payments: Where Do We Go From Here?

By Jason Braidwood FCICM(Grad), Head of Credit & Collections at Creditsafe

It was revealed by KPMG last month that only 17 large Scottish companies have complied with the latest regulation aimed at tackling late payments, despite the fact that almost 900 companies fit the legislation’s criteria.

Coming into effect last April, the payment practices and performance reporting (PPPR) regulations were introduced by the UK government to support SMEs concerned about late payments, and demand that large companies produce a report on their payment practices, policies and results every six months – with the first due in December last year.

This finding from KPMG is hardly surprising. It was recently reported that the UK’s late payment culture is the worst in the world, with UK businesses wasting an average of 15 working days every year chasing payments. Creditsafe data backs this up and shows that on average 60% of UK businesses were chasing invoices beyond payment terms at any one time, accounting for an average of 2.38 million invoices that were classified as unpaid in 2017.

But, what happens when you dig a little deeper?

Using our data, we’ve analysed the payment performance of the 17 core business and public sectors (Construction, Education, Energy Supply, Entertainment, Financial, Health & Social Care, Hospitality, International Bodies, IT, Manufacturing, Mining, Professional Services, Public Administration, Real Estate, Transport, Water & Waste and Wholesale), to assess which were the best and worst paying, and where the UK economy stands in 2018.

On the up

The disappointing reality is that paying late has become a habitual British norm in business.The domino effect results in a dangerous cycle – clients are late to pay businesses and so businesses are late to pay their suppliers. The cycle then repeats itself.  However, while it is a significant issue, it must also be recognised that not all sectors are failing to improve when it comes to tackling payments.

The best paying sector at the end of 2017 was the PublicServices and Administration sector having reduced its DBT (Days Beyond Terms) – how long it takes a business to pay its bills past the due date – by nearly 8 days over the last two months.The Education sector brought its annual average monthly DBT under double figures to 8.2 days. Meanwhile, another sector that impressed was the Financial sector, which achieved the biggest drop in payment days when comparing the start and end of 2017.

Looking at the broader picture, the close of 2017 saw a slight improvement in payment performance for the majority of industries, leaving us with glimmer of hope for the coming year. 11 out of the 17 sectors we track decreased their DBT at the end of year.

In the red

While the majority of sectors improved, there were still some extremely high figures in the mix.The sector that had the highest average monthly DBT score last year was the Energy Supply industry, which stood at 14.4 days. Also moving in the wrong direction was the Transport industry, which finished the year by adding an extra day to its payment practices – something it will be keen to reverse in 2018.

So, what next?

Our data shows that the average DBT score in the last three months of 2017 was 12.7 days, which happily is a decrease of 1.5days on the same timeframe in 2016. However, in the grand scheme of things, is this really a cause for celebration? Not when you consider that payments remain late, and several weeks after the agreed terms.

Unfortunately, chasing late payment has a stigma attached to it. Despite the fact that waiting for unpaid bills directly impacts businesses, particularly SMEs awaiting payment from larger corporates, chasing late payment is often viewed as an action that could compromise good, long-term client relationships.

The collapse of Carillion is a prime example and has brought much needed attention back to the late payment epidemic that plagues the nation. It’s been claimed the construction giant could owe up to 30,000 businesses around £1bn in unpaid payments, which its 120 day payment terms largely contributed to.Confusing matters, Carillion was actually a signatory of the prompt payment code, a regulation implemented to tackle the issue of late payment. Despite signing up to the voluntary code, the FSB has revealed that some SME suppliers were still having to wait four months or longer to settle bills with the company.

It’s clear then, that what we have is a cultural issue that needs greater transparency to drive improvements. We ended the year with some advances in timely payments, so let’s cautiously hope that we learn from recent events and that better payment behaviour is on the horizon as we press further into 2018.

By Jason Braidwood FCICM(Grad), Head of Credit & Collections at Creditsafe

It was revealed by KPMG last month that only 17 large Scottish companies have complied with the latest regulation aimed at tackling late payments, despite the fact that almost 900 companies fit the legislation’s criteria.

Coming into effect last April, the payment practices and performance reporting (PPPR) regulations were introduced by the UK government to support SMEs concerned about late payments, and demand that large companies produce a report on their payment practices, policies and results every six months – with the first due in December last year.

This finding from KPMG is hardly surprising. It was recently reported that the UK’s late payment culture is the worst in the world, with UK businesses wasting an average of 15 working days every year chasing payments. Creditsafe data backs this up and shows that on average 60% of UK businesses were chasing invoices beyond payment terms at any one time, accounting for an average of 2.38 million invoices that were classified as unpaid in 2017.

But, what happens when you dig a little deeper?

Using our data, we’ve analysed the payment performance of the 17 core business and public sectors (Construction, Education, Energy Supply, Entertainment, Financial, Health & Social Care, Hospitality, International Bodies, IT, Manufacturing, Mining, Professional Services, Public Administration, Real Estate, Transport, Water & Waste and Wholesale), to assess which were the best and worst paying, and where the UK economy stands in 2018.

On the up

The disappointing reality is that paying late has become a habitual British norm in business.The domino effect results in a dangerous cycle – clients are late to pay businesses and so businesses are late to pay their suppliers. The cycle then repeats itself.  However, while it is a significant issue, it must also be recognised that not all sectors are failing to improve when it comes to tackling payments.

The best paying sector at the end of 2017 was the PublicServices and Administration sector having reduced its DBT (Days Beyond Terms) – how long it takes a business to pay its bills past the due date – by nearly 8 days over the last two months.The Education sector brought its annual average monthly DBT under double figures to 8.2 days. Meanwhile, another sector that impressed was the Financial sector, which achieved the biggest drop in payment days when comparing the start and end of 2017.

Looking at the broader picture, the close of 2017 saw a slight improvement in payment performance for the majority of industries, leaving us with glimmer of hope for the coming year. 11 out of the 17 sectors we track decreased their DBT at the end of year.

In the red

While the majority of sectors improved, there were still some extremely high figures in the mix.The sector that had the highest average monthly DBT score last year was the Energy Supply industry, which stood at 14.4 days. Also moving in the wrong direction was the Transport industry, which finished the year by adding an extra day to its payment practices – something it will be keen to reverse in 2018.

So, what next?

Our data shows that the average DBT score in the last three months of 2017 was 12.7 days, which happily is a decrease of 1.5days on the same timeframe in 2016. However, in the grand scheme of things, is this really a cause for celebration? Not when you consider that payments remain late, and several weeks after the agreed terms.

Unfortunately, chasing late payment has a stigma attached to it. Despite the fact that waiting for unpaid bills directly impacts businesses, particularly SMEs awaiting payment from larger corporates, chasing late payment is often viewed as an action that could compromise good, long-term client relationships.

The collapse of Carillion is a prime example and has brought much needed attention back to the late payment epidemic that plagues the nation. It’s been claimed the construction giant could owe up to 30,000 businesses around £1bn in unpaid payments, which its 120 day payment terms largely contributed to.Confusing matters, Carillion was actually a signatory of the prompt payment code, a regulation implemented to tackle the issue of late payment. Despite signing up to the voluntary code, the FSB has revealed that some SME suppliers were still having to wait four months or longer to settle bills with the company.

It’s clear then, that what we have is a cultural issue that needs greater transparency to drive improvements. We ended the year with some advances in timely payments, so let’s cautiously hope that we learn from recent events and that better payment behaviour is on the horizon as we press further into 2018.