Headache for small firms as debtor days hit three-year high

Companies took longer to pay their bills in Q4 2010 than at any time since 2007 - and big firms are still by far the worst offenders.

by James Taylor
Last Updated: 19 Aug 2013
Some potentially bad news for small companies: the latest edition of Experian's Late Payments Index reveals that UK firms paid their bills, on average, 25.7 days late in the last quarter of 2010 - the highest figure since Q3 2007. The average was up for business large and small, across all different regions and sectors; so it's safe to assume the rotten weather played a big part in this. But given that the smallest firms surveyed still managed to cough up almost twice as quickly as the largest ones, that can't be the whole story...

The good news, according to Experian, is that overall payment performance actually improved in 2010 - to an average of 22.58, down from 22.81 in 2009. This is a positive development for small companies in particular, who are less able to absorb disruptions to their cashflow. However, the fourth quarter was very much the exception, with the average firm taking three-and-a-half days longer to pay their bills than they did in the previous year.

Experian points out that smaller businesses, i.e. those with fewer than 100 employees, saw the biggest increase in late payments – which is alarming for two reasons. One, it could suggest that they're having to hang on to their pennies longer because they're having short-term cashflow problems. And two, since the banks keep a close eye on indices like this to inform their lending decisions, the net result could be even tighter credit conditions. Which is exactly what SMEs don’t need.

However, as far as we were concerned, the most striking figure from this index was the extraordinary gap in payment performance between large and small firms. Although the bigger companies (500+ staff) have actually raised their game a bit this year, they still took, on average, 35.74 days to pay their bills. By contrast, micro-business (1-2 staff) – who, almost by definition, have a greater need for the cash - took an average of 18.85 days. So the companies who can afford it least are paying nearly twice as quickly as those that can afford it most. If you’re a small business owner, you’d be forgiven for being fairly outraged by this...

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