Late payments: A positive trend? 

20th October 2023

This year the UK has seen a significant decrease in the number of late payments, i.e. invoices being paid after their due date, despite the rise in insolvency numbers and the continued financial pressure on businesses.

According to an analysis of data provided by Creditsafe, between March and August 2022, there were 40,820,170 late payments across the UK. However, this figure dropped by 31% to a total of 28,242,405 for the same period in 2023.

The regional outlook

Between March and August 2023, and with the exception of London, the North West experienced the highest number of late payments, totalling 3,312,654. This however does mark a notable drop of 28.8% from the same period in 2022 when the region paid 4,649,999 invoices late.

Northern Ireland reported the fewest number of late payments between March and August 2023 totalling 419,894 – a 27.7% fall from the same period in 2022.

The East Midlands region saw the largest reduction of late payments at 35%, dropping from 2,004,571 in March-August 2022 to 1,302,018 in March-August 2023.

While it’s difficult to pinpoint the exact reasons behind the region’s success, the latest Business Confidence Monitor (BCM) from the ICAEW shows the East Midlands experienced a big boost in business confidence between March and June 2023, surpassing its historical average.

A strong performance in the manufacturing and engineering sector, a significant contributor to the East Midlands’ economy, has also likely played a role in this trend as domestic sales in the East Midlands currently outpace the UK.

On top of this, Q2 statistics from the East Midlands Chamber also show that despite challenges like high inflation and rising interest rates, the percentage of businesses reporting pressure to increase their prices has fallen sharply, down to 36%, suggesting many of the increased costs have now been passed on. With more money in the bank and better cash flow management, these businesses have been able to reduce the amount of invoices paid late to their suppliers.

In the same period, Scotland saw the smallest reduction in late payments, falling by 22.8%. This decrease, while still substantial could be attributed to the rise in corporate tax to 25% which came into effect in April.

Insights from the ICAEW show that this tax burden is one of the biggest causes of concern amongst businesses, as well as increasing competition in the Scottish marketplace. Faced with both a heavier tax load and heightened competition for customers, these factors are likely contributing to the slower decline in late payment figures.

Sector insights

A sector-specific analysis of the data unveils the impact of late payments on different industries. The construction and wholesale/retail sectors continue to grapple with the highest numbers of late payments, with the two sectors reporting the highest numbers in both 2022 and 2023.

Between March and August 2023, 517,773 companies in the construction sector reported delays in payment, a 5.6% decrease from 548,456 companies in the same period in 2022. Similarly, the wholesale/retail sector reported 439,375 overdue invoices during the period 2023, showing a 12.8% reduction from the 503,929 reported in 2022.

These trends align with insolvency data, where construction and retail also see some of the highest numbers of corporate insolvencies.

Interestingly, the real estate sector experienced a 35.7% reduction in the number of late payments when comparing the six-month periods of 2022 and 2023. This can be attributed to the surge in the rental market driven by soaring living costs and high mortgage interest rates.

A Q2 market report from Connell Group, a large UK real estate and property services company, shows there has been strong tenant demand this year, which has likely led to improved rental income stability. Although rent increases have slowed down, they are still up by 6% year on year, providing a steady income source for letting agencies.

The real estate market also experienced a surge in sales activity in Q2, with a 10% increase compared to Q1. This, coupled with a notable increase in supply, may have contributed to letting agencies finding it easier to secure tenancies and maintain cash flow.

A lasting change?

As the cost of living continues to bite consumers and costs continue to rise, it’s clear that many companies have sharpened their focus on cash flow management, and are taking proactive steps to meet payment deadlines, while suppliers are likely to be enforcing stricter payment terms on their customers.

While the decline in late payments is encouraging, the question remains whether this is a long-term trend or if a resurgence in late payments could take place.

The key factor affecting this trend is likely to be the economy – if interest rates rise, the costs of materials and energy remain high, and demand for goods and services drops, we may see more firms delaying paying their suppliers – or seeking advice about how best to manage their finances and their debts to their supply chains.

Nicky Fisher, President of R3 and Partner at Herron Fisher