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Call for legislation as survey shows culture of late payment escalating

By CreditMan Wednesday, July 13, 2011

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 industry experts 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.”

Betty Fleming, credit services manager at Brammer, one of Europe’s leading distributors of industrial engineering products, took part in the survey. She explains: “Extended payment terms are not good for the economy – money isn’t moving around quickly enough. Some smaller companies who aren’t cash rich will be required to try to borrow more from their bankers and/or financiers and may find this impossible, more so when interest rates rise - they could easily be forced out of business.”

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.”

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.”

Colin Byrne, EMEA credit and collection manager at Novell (Ire) Software Ltd, says: “Every day we have a new case of a customer delaying payment and it always relates to the knock on effect of them struggling to recover cash from their own customers. We do try to be flexible where we feel a customer needs a little elbow room. However, there are certain companies taking advantage of the “crisis” to attempt to push terms out unnecessarily - and these are the cases where we try to stand firm.

“Personally I’d like to see banks giving more support, particularly to the SME sector. But also, tougher sanctions on larger companies who are contributing massively to the cash slow down by deliberately paying smaller suppliers late. I cannot understand how this can be a genuine long term commercial strategy, given the blatantly obvious impact it is having.”

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

Read more at www.thepandagroup.co.uk/credit-risk-survey