Late payers ignore mercy pleas

BIG companies have intensified a vicious squeeze on smaller suppliers in the last three months by taking longer than ever to pay their bills, according to a survey by Trade Indemnity published yesterday.

This is despite a campaign by industry leaders to ease a pressure that is driving many small businesses into receivership.

Large companies are holding on to cash as long as possible, using their suppliers instead of their bankers to fund their businesses.

The survey found that 27 per cent of all companies felt late payment problems increased over the past quarter and 63 per cent saw no improvement.

While larger companies are kept waiting for an average of 15 days after the payment date, smaller companies are paid 29 days late, according to the credit insurance group in its second quarterly survey, which produced more than 700 responses. Smaller firms now find 27 per cent of their invoices unpaid a full month after the date the money is due.

While 31 per cent of firms with turnover between pounds 1m and pounds 2.5m have seen lengthening payment delays over the quarter, this has affected only 23 per cent of firms with turnover above pounds 50m.

Clive Brand, senior economist at Trade Indemnity, said: 'The vicious circle of late payments continues to plague UK industry, with smaller companies being the biggest losers. One late payment has repercussions throughout the entire length of the payments chain.'

Some companies have long- outstanding unpaid debts that account for over 10 per cent of their annual turnover. One firm in 10 has half its invoices 30 days or more late. The average delay for all firms is 26 days, a one-day improvement. But this disguises a rise in the proportion of invoices paid late from 22 to 23 per cent, the worsening situation for small firms and deterioration in a number of industrial sectors, particularly steel stockholders and textile distribution.

The engineering and motor manufacturing industries also continue to suffer higher than average delays in payment, Trade Indemnity said.

While the payments problem has encouraged companies to pay more attention to credit control procedures, the number doing so has dropped back since the previous survey. This suggests that some companies feel they have done all they can to reduce their exposure to debtors, Trade Indemnity said.

However, one bright spot is that the average size of unpaid debts has fallen back nearly pounds 20,000 to pounds 102,000. There is also a marginal improvement in the number of companies that believe they have come close to, but avoided, a major customer default in the past three months.

The survey confirmed a gloomy picture of the UK economy in the second quarter, with 40 per cent of firms reporting some pick-up but 32 per cent seeing a continued downturn.

Of the 700 firms, 31 per cent are working at under half capacity and only 45 per cent are at or above three-quarters of their potential output.

Mr Brand said activity remained sluggish, with half the respondents expecting no change in the current quarter and only 36 per cent foreseeing higher output.

Capacity use remains particularly low for small firms, of which only a third are working at more than 75 per cent of capacity.

The level of cancellation of orders has failed to improve and there has been a deterioration in some sectors, such as clothing and footwear.

Trade Indemnity does not expect an upturn in the economy before next spring at the very earliest. The fall in corporate gearing in the first quarter has not continued and business debt remains at an unhealthy level, made worse by high competition and price discounting, which is eroding profit margins.

However, bad debts have stabilised, with 60 per cent of replies showing no change between the first and second quarters.

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