Businesses in Britain have a higher proportion of overdue invoices compared to their counterparts across Western Europe, new research by trade credit insurer Atradius reveals.
The annual Atradius Payment Practices Barometer for Western Europe found almost half of all British business invoices (48.7%) were overdue. This compares to an average across the region of 41.8%, up from 40.7% in 2017. In addition, Great Britain faces the longest B2B payment delays with businesses receiving payments for their products and services an average of 34 days late – 10 days longer than the average among Western European businesses.
The report, which surveys companies across 13 Western European countries, also found nine out of 10 British businesses (89.6%) were experiencing frequent late payments, slightly higher than the Western European average (87.6%). British businesses are marginally more likely to experience payment delays when trading internationally; 91% reported frequent late payments from overseas customers compared to 88.2% from domestic customers.
Late payment from B2B customers is reflected in a longer DSO, which may adversely impact businesses’ liquidity, increasing B2B trade credit risk. Based on the Atradius research, over the past year Great Britain recorded the second biggest increase in DSO at 35 days, up from 31 days. The biggest increase in DSO was recorded in the Netherlands (46 days, up from 41 days). More than half of the firms surveyed across Western Europe said payment delays affected their business. Of these, 18% had to take specific measures to correct cash flow, 16.8% reported losing revenue and 15.9% subsequently postponed payments to their own suppliers.
The reason most cited for payment delays was an insufficient availability of funds, reported by 39.2% of British businesses. More than a quarter of businesses (28.8%) blamed delays on their customers using outstanding invoices as a form of financing. Interestingly, disputes also accounted for a significant number of late payments; 26.3% of businesses said delays were due to the goods or services provided not corresponding to what was agreed in the contract. Moreover, 22.6% cited a dispute over the quality of the goods or services provided as a contributing factor.
The Payment Practices Barometer also reported the proportion of B2B sales made on credit in Great Britain as having dropped by 6.7% year on year to 39% – although this remains slightly higher than the Western European average of 37.4%. A third of Western European businesses said they would refuse to grant credit terms to an overseas B2B customer if they lacked information on the customer’s business or payment performance.
Tom Danson, Head of Commercial for the Midlands Region at Atradius, said “Today’s economic climate is characterised by change and uncertainty, and it is evident that this has taken its toll on businesses in all sectors. What lies ahead is becoming more difficult to predict which makes the risks of trading all the more acute. With an increase in late payments and Atradius economists predicting a 6% increase in UK insolvencies in 2018 and a further 3% in 2019, businesses need to have a risk management strategy which is robust and adequately safeguards their bottom line – or face the consequences. Protection of receivables is of paramount importance. Credit insurance enables businesses to manage the inevitable risks of selling on credit and importantly, also equips firms with access to accurate and up to date business intelligence to help them grasp growth opportunities through safe and profitable trade.”