Over 1,000 businesses face insolvency due to late payments

Date: 03/04/2019
Author: Paul Stanley
Company: Begbies Traynor Group plc

Manchester-based insolvency practice, Begbies Traynor, finds that UK companies wait an average of 57 days for payment, with a large proportion forced into insolvency as a result.

The insolvency specialist with over 70 offices across the UK found that 115,000 UK firms were forced to wait nearly two months to receive payment last year. Begbies Traynor gathered the data from over one million debtor day reports ranging back to 2011.

It was found that 34 per cent of businesses had debtor days in excess of 57 days. Around 15 per cent of companies waited longer than 86 days, equivalent to around three months.

The late payment issue is high on the agenda as Chancellor, Philip Hammond, raised the problem during the Spring Statement. Payment terms are seemingly getting longer and further exploiting smaller businesses, deterring them from trading with larger companies. In a bid to tackle late payments, the Chancellor proposed for listed companies to publish their payment performance along with their annual accounts and reports.

Following the high profile collapse of the UK’s second largest construction firm, Carillion, there was a surge in insolvencies in the construction sector after the company reportedly owed £2 billion pounds to 30,000 businesses. Carillion was well known for pushing smaller businesses down the priority line in terms of payment which led to the closure of many.

In the last year, 35,000 businesses reported debtor days and of 260 businesses which went under as a result, an average of 25 debtor days was experienced. This shows the significance of late payments on the survival of businesses across the UK and Manchester.

A sector breakdown of debtor days from 2011 to 2018 includes:

  • Media - 66 days to 69 days
  • Telecommunication and Information Technology - 62 days to 68 days
  • Construction – 61 days
  • Travel and Tourism – 46 days to 48 days
  • General Retail – 41 days to 43 days

The media industry is suffering from the highest waiting times for payment, highlighting the imbalance in power in the sector.

Paul Stanley, North West regional managing partner at Begbies Traynor, said: “SMEs in Manchester and across the region regularly experience the detrimental effects of late payments.

“If we fail to tackle the issue head-on, SMEs will be discouraged from trading with larger businesses, restricting the growth of the UK economy.”

Paul Stanley of Begbies Traynor said: “If bigger corporations continue to take advantage of the smaller businesses, it will not be sustainable for these suppliers to take the hit for late or non-payments as this jeopardises cash flow and the overall financial health of the business.

“Our Red Flag Alert data has shown an increase in financial distress as a result of late payments, with more than 100,000 businesses reporting debtor days last year.

“UK businesses will need to improve the late payments culture if our economy is expected to strengthen and create a supportive environment for SMEs.”