East Midlands businesses hampered by late payment

· Time: East Midlands companies were waiting an additional 14 days to get invoices paid in 2019

· Value: Average value of invoices being paid late was £44,028 in 2019

· Late: The amount of invoices being paid late has increased to 40% in 2019 from 32% in 2018

28th January 2020: Fintech business lender MarketFinance examined over 2,000 invoices1 from companies in the East Midlands to reveal stark trends leaving businesses struggling with cash flow.

The analysis suggests that businesses typically agree 45-day payment terms from completion of work or delivery of goods. Despite this, 40% of invoices issued in 2019 were paid late, a significant increase from 2018 when a third (32%) were paid late. However, the number of days an invoice was paid late in 2019 has increased to 14 days from 11 days in 2018. Invoices paid late were typically larger in value (£44,028) than those paid on time (£19,925).

Long payment vs Late payment. There is a distinct difference between these terms. Long payment terms refer to the time contractually agreed between parties when invoices will be settled for goods and services provided. Whilst sometimes lengthy, they are a reality of doing business. Businesses can plan to cover these cash flow gaps and manage their working capital using either cash reserves or finance tools like invoice finance. Late payment refers to the additional time taken to settle invoices, outside of those contractually agreed at the point of purchase. This is an unknown and unexpected element which can significantly impact cash flow, business plans and even in some cases paying staff or creditors.

Late payment trends have improved over the years for businesses in the East Midlands but 2019 signalled a shift when more invoices were being paid late and taking longer to settle.

This table illustrates the historical trends:

Bilal Mahmood, External Relations Director at MarketFinance, commented: “The business landscape of the East Midlands is a broad spectrum of traditional industries but is changing. It is growing from manufacturing, construction and textile hubs to developing health-tech, engineering and finance clusters. With payments going well beyond the already lengthy agreed terms, businesses effectively end up waiting up to 59 days, on average, to be paid. This will undoubtedly impact these growing sectors, affecting their payroll, supply chains and general financial wellbeing.”

“It’s unfair for businesses to have to wait to be paid beyond what is agreed. Late payment practices harm business cash flow, hamper investment and, in extreme cases, can risk business solvency. Government measures such as the Prompt Payment Code and Duty To Report have helped create awareness but need more bite. Until this happens, there are ways for SMEs to fight back against the negative impact of late payments, from having frank discussions with debtors that continuously fail to adhere to agreed payment terms, to imposing sanctions on those debtors, or seeking out invoice finance facilities to bridge the gap.”

Bilal Mahmood added: “SMEs owners have come to expect long payment terms but late payments are inexcusable. For every day an invoice is late, it’s more time spent chasing payment. This means less time for business owners to focus on growing their business, coming up with innovative ideas and hiring more people, or just paying their staff and bills. Things need to change quickly.”