|SMALL BUSINESS COMMISSIONER CALLS FOR TRAFFIC LIGHT WARNING SYSTEM AS RESEARCH REVEALS 65% OF LARGE FIRMS PAY 30 DAYS OR LONGER
January 24th, 2019.
New public data analysed for the first time by Lloyds Bank Commercial Banking in partnership with the Small Business Commissioner, analysed official payment reporting returns based on the annual reports of large businesses. Legislation imposed in April 2017 required all large businesses to publish their payment practices.
The research carried out sampled data from 7,010 companies and revealed that:
- 65% of large businesses have an average bill payment time of more than 30 days
- more than a fifth (21%) of large businesses report an average bill payment time of 50 days and above.
- the average time taken to pay a bill is 37 days – with wide variations in different parts of the UK.
- companies in London are the most prompt – paying bills in 34 days followed by those in the South West, paying after 35 days
- conversely, companies in Yorkshire and the Humber have the worst record with payments taking 43 days, followed by companies in Northern Ireland and East Midlands with an average payment time of 41 days
- only 14% of companies from the 7,010 analysed, reported payment terms of 19 days or under
The research is being cited in a proposal from the Small Business Commissioner to publish ‘traffic light’ warnings to help small businesses undertaking contracts with large businesses. The large businesses that are taking longer than 30 days to pay are in effect using their supply chain to finance their business. The Commissioner strongly believes that a simple warning system will alert small businesses to the potential risk of longer payment terms.
The Small Business Commissioner, Paul Uppal, said: "There has been a requirement since April 2017 for large companies and limited liability partnerships (LLPs) to report twice a year on their payment practices and performance, including the average time taken to pay supplier invoices.
"Some businesses have now created a number of reports whilst others still have yet to produce a single report . Our ambition is to help small businesses make more informed choices when deciding which larger businesses they are going to trade with. A traffic light system would be a simple and effective visual way of highlighting which larger businesses are paying promptly and are working in partnership with their supply chain.
"Our initial findings indicate that almost two-thirds of payments are likely to be owed to smaller businesses at any time. This is money that could be used to grow smaller businesses and generate tangible economic activity. Instead it is stuck on the ledgers of large businesses doing nothing.
Ed Thurman, Managing Director of Global Transaction Banking at Lloyds Bank Commercial Banking, said: "We have discovered wide variations in payments depending on where businesses are located. For some businesses 2 weeks can be critical in the financial well-being of a smaller businesses. Businesses could consider utilising invoice financing products to mitigate these challenges."
Of the 65 % of payments made longer than 30 days to small businesses from large companies:
25% are made after between 30 and 39 days
19% are made between 40 and 49 days
12% are made between 50 and 59 days
5% are made between 60 and 69 days
2% are made between 70 and 79 days
2% are made after 80 days