British businesses starting to pay more promptly

Late payments: eternal bugbear of SMEs. There are now some good news regarding the average time taken by British businesses to pay their bills: it has improved by two days throughout 2012 to an average of 15 days late against agreed payment terms, according to data released by commercial information firm D&B.

British businesses have been steadily paying bills later in recent years, from thirteen days late in 2006, peaking at seventeen days in 2011. The results suggest many businesses have adapted to operating in today’s sluggish economy and are managing their cash flow more confidently.

The data could mirror the impact of the recently updated EU Payments Directive, which makes it easier for businesses to pursue payment, with debtors being forced to incur interest and pay an administration fee if they fail to pay for goods and services within 60 days for business and 30 days for public authorities.

Comparing European markets, the average fifteen-day late payment times for British businesses over the past year are similar to that of France, Spain and Italy. However, this is nine days slower than Germany, which has the shortest average payment period of the countries. The payment period in Portugal is seven days longer than the UK.

Payment behaviour of businesses is influenced by many factors, including macro-economic pressures and management style within different sectors.  For example, within the UK, the finance and insurance sector has the highest average payment time of seventeen days, whereas in the agricultural sector this is eleven days.  In general, payment performance across all UK sectors improved moderately over the past year with the exception of the retail sector, where payment time increased substantially to 19 days during 2012. 

Corinne Saunders, president of D&B Europe & Worldwide Network, said: “Payment trends offer valuable insight into the trading performance of a business, and changes are one of the earliest signals of financial difficulty or potential failure.  Whilst we’re unlikely to see an increase in litigation as a result of the updated Payments Directive, it should encourage businesses to take a fresh look at their payment behaviour and that of their customers. It will also put pressure on large businesses in sectors where extended payment terms have been used as a means to protect margins, often putting smaller suppliers under increasing pressure.”

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