Ever wondered how your business’ invoice payment terms compare to those of other companies, or whether your customers are particularly bad at paying on time and in full? Using survey results from Atradius’ Payment Practices Barometer, this article sheds light on average payment terms in the UK as well as rates of uncollectable debts and late payments among UK businesses.
According to the research businesses in the UK on average offer a 25 day payment period as part of their invoice payment terms, a staggering 13 days less than the average period included in the payment terms of companies in mainland Western Europe. In the financial services sector average payment terms were even shorter at just 19 days.
However, particular industries continue to offer lenient payment terms despite the difficult trading conditions; for instance, of the businesses surveyed those in the manufacturing sector offered average terms of 33 days, the longest of any sector. This group were also most likely to sell on credit terms, with these sales accounting for 46% of total sales. This compares to an average of 40% across UK businesses in general and 53% across businesses in mainland Western Europe.
The most cited reason for suppliers offering trade credit to business to business customers was its use as an effective tool for establishing long-term trade relationships.
Businesses that took part in the survey reported an average 29% of invoices being paid after the due date set out in the payment terms with 7% of invoices remaining unpaid beyond 90 days of the agreed terms.
39% of businesses surveyed offered some form of a discount structure in an attempt to encourage early payment of invoices however, only 25% of customers took advantage of such schemes suggesting many firms are struggling to manage fragile cash flows.
Perhaps reflecting their generous payment terms, manufacturing companies benefit from the lowest levels of uncollectable invoices, whilst businesses in service sectors suffer some of the highest.
Given the current economic crisis and the financial pressures being placed on UK businesses of all sizes, it is not surprising that liquidity issues were cited as the most common reason for late payment among domestic business to business customers. However, for foreign customers the most cited reason for late payment was the complexity of the payment procedure; an important point worth considering for those exporting products and services abroad.
Holmes & Hills has a specialist team of debt recovery solicitors providing debt recovery services businesses across the country.
A Mackman Group collaboration - market research by Mackman Research | website design by Mackman
