Friday, 01 November 2013 15:32

Experian: The bigger they are, the later they pay

The Experian Late Payment Index published on Monday shows again that the bigger a company is, the later it is likely to pay its suppliers, making for a timely reminder of the true nature of 'brand power' and its potential negative impact on small companies' cash flow.

In the third quarter of 2013, the smallest firms, with just one or two employees, paid an average of 20.62 days beyond agreed terms on overdue invoices - the smallest delay among UK companies of all sizes, and a slight improvement from 20.78 days in the previous quarter.

But by contrast, companies with over 500 employees saw their overdue payments made even later than in the previous three months, sliding from 34.19 days in Q2 2013 to 35.40 days in Q3, more than ten days longer than the national average (25.00 days) and a massive 15 days, or three full working weeks, longer than small firms' payments.

Ade Potts, managing director of Experian's SME division, says: "Late payment is creeping up again, especially at the larger end of the business world."  He adds that there are "steps SMEs can take to increase their chances of getting paid faster", such as sourcing Experian credit report data to help identify debtors who are either unwilling or unable to pay.

Too big to pay?

Even more worryingly, recent reports in the Financial Times claimed that some government departments have incurred interest charges on overdue invoices, raising questions of whether taxpayer money is being wasted as it goes towards such penalties.

For the government, which is currently championing the voluntary Prompt Payment Code and other initiatives to ensure SMEs get their money faster, the revelations are likely to come as something of an embarrassment - and the opposition have been quick to criticise.

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Shadow Cabinet Office minister Michael Dugher wrote an open letter to his counterpart Francis Maude, raising concerns about the interest charges faced by the government.

"Late payment or waste would dismay all who want to see government set an example to businesses to deliver prompt payment," he warned.

Problems of scale

If the evidence from large private companies and government in the UK is not compelling enough, then a report from the European Court of Auditors demonstrates that the larger the organisation, the more difficult it can be to balance the books.

For 2012, the ECA found that 4.8% of operational spending by the EU was subject to error, up from 3.9% in the previous year and affecting all operational spending areas.

In this instance, the measure is not of waste or of fraud, but of money paid out to suppliers or other service providers that, due to EU legislation, should not have been eligible for the contract in question.

But it highlights how, in a larger organisation, costs can soon get out of control in many different ways, and the mere size of a customer should not be taken as an indication that they will be any more organised, or more willing and able to pay, than a smaller client would be.

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