Thursday 1st February, 2018
Following the Duty to Report regulations that came into force last April, the Chartered Institute of Credit Management (CICM) has reported that more than a quarter of all invoices are being paid late.
The average reported time to pay was 38.97 days with just over half (51.71%) paid within 30 days. A third (33.02%) were paid between 31 and 60 days, and 15.25% were paid later than 60 days. However, the most troubling statistic is that more than a quarter (27.26%) were paid beyond the agreed terms.
Philip King, Chief Executive of the CICM, says a snapshot of these firms reveals some alarming trends: "The biggest issue for many SMEs is not the length of payment terms but the certainty that payment will arrive when they expect it. Often, payment of a large supplier, the rent, or the wages are dependent on a large invoice being paid.
“If more than a quarter of invoices are being paid late then the suppliers are seeing a hole in their cashflow which is worrying, at best, and can be catastrophic. For many small businesses, it’s about more than just the balance sitting in the current account.”
Mr King warns, however, that the figures do not always tell the whole story: “One company, for example, reports that zero invoices are paid late – which must be a good sign – yet the average time to pay is 69 days, and only 7% of invoices are paid within 30 days, which is far less encouraging. Its maximum contractual payment terms are 75 days.
"Contrast that figure with another company that reports paying 57% of invoices outside the agreed terms, yet 52% within 30 days, 28% between 31 & 60, and 20% over 60 days. Its average time to pay is 56 days. Which company is the better bet? How you interpret these figures is dependent on your point of view and what is most important to you.
"It is easy to draw conclusions that might be misleading – both good and bad. Sometimes you need to read between the lines."
Mr King believes that the new Government portal where all such future information will be available should help SMEs adopt best-practice credit management and get a more informed picture of who they are doing business with.