The Times, the FT and the Chancellor focus on late payment

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Earlier two football clubs were commended on this site: Liverpool managed an average of 27 days, beating Arsenal’s 35. The fastest payer was Music Magpie – an online reseller of CDS, DVDs and books – averaging just five days, with 94% of invoices settled within 30 days.

Oliver Ralph (left), insurance correspondent of the Financial Times, reports that companies around the world are taking longer to collect payments from customers, leading to a growing risk that they could hit trouble as the global economy slows.

Research from trade credit insurer Euler Hermes shows that companies are accepting much longer payment terms from their customers than they were a decade ago.

The average global days sales outstanding, or the number of days it takes for suppliers to be paid for their goods or services, has grown by one-tenth since 2008 to 66 days and is likely to increase again this year.

Ludovic Subran, chief economist at the Euler Hermes, said the trend increases the risk of insolvencies. One in four is because of non-payment from customers.

He continued:

“This is one of the dark sides of the recovery. Companies are extending a lot of trust in the way that clients pay them — it is a loosening of discipline. The longer you wait, the more the risk that your clients hit trouble. When there is a cyclical downturn the companies with longer payment terms are those that get hit first.”

Companies in New Zealand only have to wait for 43 days on average, while South Africa, Denmark and Austria also recorded low numbers.

James Ashton of the Times (right) reports that small contractors say a familiar trick is to delay signing contract terms for as long as possible after work has begun in good faith. That way a purchase order cannot be raised, nor can an invoice be submitted. Only when customers have signed on the line can the clock start ticking. One small business owner toldhim about a large firm that demanded a 1% discount for 14-day payment. When the supplier said that 30 days would be just fine, she was told it was their way or the highway.

He added that Carillion, the collapsed constructor, made small firms wait 120 days for payment in order to flatter its own cash position

The company employed an “early payment facility” so suppliers could borrow against their invoices before being paid. It made a mockery of the Prompt Payment Code which asks that 95% of invoices are paid within 60 days and that firms “work towards adopting 30 days as the norm”.

Ashton points out that under new disclosure rules, larger companies are now obliged to begin publicly reporting their payment practices.

In his spring statement chancellor Philip Hammond called for evidence designed to wipe out “the continuing scourge of late payments”.

Former MP Paul Uppal (left) had been appointed as the small business commissioner to campaign for prompt payment and mediate in disputes. But though the total outstanding to small firms has fallen from £30 billion to £14 billion in five years according to the BACS payment system, the Federation of Small Businesses is still concerned about cases affecting their members.

Unless otherwise agreed, a payment is deemed late 30 days after an invoice is received by public authorities and 60 days by businesses. Thereafter, under the terms of the Late Payment of Commercial Debts (Interest) Act 1998. a firm chasing payment is entitled to charge interest of 8% above the base rate, plus a recovery sum of £40 up to £1,000, rising to £100 for £10,000 or more. However small suppliers do not insist on this because they fear that they will receive no further orders from the customer so charged..

In 2015, Tesco promised to pay within 14 days small suppliers who delivered it less than £100,000 of goods a year and kept its word, followed later by Morrisons, Waitrose and finally Asda.

As Ashton commentsOther large companies should make prompt payment as important to their image as reducing their carbon footprint and increasing recruitment diversity”

 

 

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