Credit Management October 2018

PAYMENT TRENDS
The great summer slowdown
The latest monthly business to business payment
performance statistics.
AUTHOR – Jason Braidwood FCICM(Grad)
YOU could argue that it’s
been a pretty good summer
by most accounts. Record
temperatures have meant
people across the UK have
been better able to enjoy
some of the country’s much-loved activities.
When it comes to payments, however, the
story has been rather different.
Looking at the late payments data,
our analysis shows that the average
Days Beyond Term (DBT) has increased
dramatically between the last two months.
When breaking down the data by sector,
the average DBT across industries has shot
up to 16.4 days, the highest since May 2016.
The regional data paints a similar picture,
with an average DBT of 15.2 days, the
second highest since December 2016.
Why is this? Well, there are likely
to be a multitude of factors that have
contributed to this trend. One thought
is that the summer months are always a
challenge for businesses as employees
take time off to spend with their families
or go on holiday. With people often away
during the transaction process, reduced
capacity makes it much harder to chase
late payments. One could speculate that
this has been exacerbated by the record
temperatures we’ve seen this summer,
leading to more people taking time off
work to take advantage of the sun.
However, when comparing August’s
data to the same period last year, the
difference is striking. The average DBT by
sector in August 2017 was just 10.2 days.
Perhaps it’s not surprising that, according
to the Met Office, last summer was the
11th wettest on record, despite warmer
than average temperatures. Coincidence?
Perhaps, but nevertheless, this year there
has clearly been a substantial impact on
businesses suffering from late payments.
There is also likely to be a greater
impact on SMEs as late payments make it
particularly difficult to maintain a robust
and healthy cashflow. When your team is
small, one person’s summer holiday can
have major implications for the financial
health of a small company. According to
research from online payments provider
GoCardless, 57 percent of small business
owners have had to cancel personal
holidays this summer in order to chase
late invoice payments. Furthermore, two
thirds of the businesses surveyed agreed
that summer was the worst time for
late payments, with more invoices paid
beyond the agreed terms than any other
time of year.
Businesses of all sizes should therefore
take note when managing their supplier
relationships. Paying invoices later than
the agreed terms has a negative impact
not just on businesses, but also on the
individuals who keep small businesses
running effectively all year round.
SECTOR SPOTLIGHT
With the cross-sector average at its
highest for more than two years, let’s
take a look at which industries are most
at fault. Surprisingly, ‘Businesses from
home’ paid suppliers on average 20.2
DBT, an increase of 10.1 days when
compared to July, the largest rise across
all sectors. Elsewhere, the Education
and Professional and Scientific sectors
also performed poorly, increasing their
average DBT by seven and 6.3 days
respectively. The Energy Supply sector
was the worst performing of all, taking 21
days DBT on average to pay its suppliers.
On a more positive note, the
International Bodies and Entertainment
sectors still possess a relatively healthy
DBT of 9.1 and 13 days respectively.
Indeed, the International Bodies sector
was the only sector to come under the
ten-day mark. Meanwhile, the Education
sector saw a noticeable decline, with its
average DBT climbing to 15.4, an increase
of seven days when compared to the
previous month.
Perhaps most disappointing of all,
only three of the 20 sectors monitored
bettered their average DBT in August,
with Public Administration, Mining and
the Agricultural industries each modestly
improving their score from the month
before. Let’s hope this isn’t an indication
of things to come.
REGIONAL SPOTLIGHT
When breaking down the data by region,
only Wales managed to improve its DBT
from last month, with the remaining ten
regions all performing worse. Indeed,
Wales’ average DBT only decreased by 0.3
days, enough to take fourth place overall
for August.
East Anglia can be satisfied in retaining
the top spot, possessing an average DBT of
13.1 days, a small decline from the month
before. Yorkshire and Humberside (13.7
days DBT) along with Northern Ireland
(13.8 days) closely follow behind along
with Wales (14.1 DBT) and the South East
(14.3 DBT).
Scotland continues its miserable late
payments run, once again taking home
the wooden spoon. London also fared
badly, holding onto second-to-last place,
paying its suppliers 18.8 DBT, a fall of 2.5
days. The West Midlands is the third worst
performing region, taking on average
15.2 days to pay its suppliers.
Looking forward, it will be interesting
to see if next month’s results improve
from the current standings. Scotland
and London in particular have often
languished towards the bottom of the
rankings, so let’s hope there are signs of
progress to come.
Jason Braidwood FCICM(Grad),
Head of Credit and Collections at
Creditsafe Business Solutions.
The Recognised Standard / www.cicm.com / October 2018 / PAGE 34