Call for legislation as P&A survey shows culture of late payment escalating

More than two years after the introduction of a code of conduct to crack down on late payment in business a new survey shows that the problem is getting worse.

Now the Sheffield-based industry experts who conducted the survey are calling for legislation and warning that an escalating culture of late payment is holding back the UK’s economy.

According to a survey of credit and finance professionals, more than two thirds of leading international and UK suppliers are being paid late by their customers.

Laurie Beagle, divisional director of P&A Receivables Services Plc, who worked with Sheffield Hallam University Business School to survey 540 credit and finance managers from manufacturing, distribution and service companies, says: “It is quite clear that the voluntary Prompt Payment Code is not working and that we need legislation to make businesses pay their suppliers on time. I knew that requests for extending payment terms were increasing but I had not expected to see such a high volume of late payments or so many demands for extended payment terms.”

Jeremy Priestley, managing partner of The P&A Group of Companies, added: “The survey results reinforce what I am hearing when I talk to SMEs and my own friends in business – everyone is complaining that they are not being paid on time. Businesses are fighting all the time to get paid. Cash is tight and big companies are hoarding cash to bolster their balance sheets. Smaller businesses in the supply chain will run out of options and flexibility. Ultimately they will fail because of lack of cash in their businesses.

“It’s a vicious circle for SMEs – if they push too hard they lose their customer but if they accept the terms they could put their entire business at risk.”

Seventy per cent of the 540 respondents in the survey carried out by P&A Receivables Services Plc, part of The P&A Group of Companies Ltd, said that their customers had paid them late over the last 12 months – with more than half of those (53 per cent) saying customers were paying more than 15 days late.

Of those surveyed, 57 per cent had received requests from customers to change payment terms – with some demanding up to 120 days credit.

“Thirty days credit is the norm in around 80 percent of companies yet major buyers in a wide range of sectors are telling their suppliers that they are now going to pay on 60 days,” says Laurie Beagle. “In the last week I have heard of a number of very well known companies demanding payment terms of 120 days. In another case a major retailer insisted on 90 days payment terms. One of their larger suppliers threatened to walk away but a smaller supplier had to accept these new terms.”

Denzil Watson, principal lecturer in finance, Sheffield Business School at Sheffield Hallam University, said: “When you consider many companies’ standard payment terms are 30 days it is not hard to appreciate why so many small local firms are being hit hard by this. Due to their size many local suppliers have less bargaining power compared to customers. When you combine this with their limited access to more traditional lines of finance it is easy to understand why many end up paying the ultimate price, by either going out of business or having to make people redundant as a result of the reduced cash-flows coming into their operations.”

The companies surveyed on their views on payment terms and business risks include global household names in IT and manufacturing. Many businesses who took part are members of international credit forums chaired by Laurie Beagle.

“I’ve heard forum members refer to bully boy tactics from some of their bigger customers. Large suppliers may be able to stand firm against such requests but smaller companies are being held over a barrel and it is costing them money. Such demands could even see smaller companies having to cut jobs or worse, close down the business.”

Businesses who took part in the survey include Marshalls, the UK’s leading manufacturer of stone and concrete landscaping products; Ingram Micro Inc, the world’s largest technology distributor and ASD metal services, the largest independent multi metals stockholder & distributor in the UK, and a key member of the Klöckner & Co. Group.

P&A Receivables Services Plc is a division of The P&A Group of Companies, one of the largest independent insolvency and debt collection firms in the country, acting for multinational PLCs and financial institutions as well as accountants, solicitors and business advisors across the UK and Europe.

P&A Receivables and Sheffield Hallam University plan to carry out the survey annually.

To view the survey’s results in full go to www.thepandagroup.co.uk/credit-risk-survey