Businesses in UK manufacturing are waiting longer than any other sector to get paid by their buyers, according to a report by leading trade credit insurer Atradius.
The company’s recent Payment Practices Barometer revealed that during the first quarter of 2012 the manufacturing sector waited on average 32.4 of days to be paid, whereas the financial sector had the lowest average wait, at just 19.3 days.
In addition, the manufacturing sector reported the largest proportion of uncollectable payments from B2B customers, out of an overall 4% of payments that were written off as uncollectable in the UK. Despite this, Atradius found that 45.6% of all UK businesses in manufacturing choose to supply products on credit as a way of establishing long-term domestic trade relationships. They also offer the longest payment terms for B2B customers.
Alun Sweeney, Director of Atradius UK & Ireland, said: "There is no doubt that manufacturing firms are finding the climate difficult to trade in, as our report shows the sector is increasingly cited as having the longest payment delays and the highest proportion of unrecoverable payments. Unfortunately, this does not come as a surprise when almost half of all respondents in the manufacturing sector revealed that they are supplying products on credit and offering longer payment terms, despite the challenging economic climate faced by customers. The worry is that although these techniques may sustain business in the short term, cash flow issues could well impact their stability in the long-run."
In response to slowing economic growth, the report shows that all British businesses are expecting an increase in trade credit risk and as a result, are seeking new ways to reduce payment delays and defaults.
Of all UK firms, those in manufacturing are most likely to incentivise customers to pay their invoices early, 45% versus 38.6% on average, in an effort to recoup payments on time. However, Atradius warns that this kind of credit management tool can be problematic as it offers no recompense for non-payments.
Alun Sweeney continued: "It’s encouraging to see that, despite having the highest volumes of unpaid invoices, British manufacturers are using credit management tools in order to try and keep financial damage to a minimum. Although tools like early payment discounts are used as easily-achievable ways of increasing timely payments and recouping costs, they are not risk free and can easily lead businesses into financial difficulties. With customers’ own cash flows being squeezed, along with challenging trading conditions, these tools aren’t able to safely guarantee payments or compensation in the event of payment defaults.
"Businesses in the UK manufacturing sector need to take precautions to protect themselves from payment risks, using tools such as frequent checks of their customer’s creditworthiness, dunning and trade credit insurance, so each transaction is protected against losses, particularly in the face of insolvency and protracted payment defaults.
"Atradius has intelligence on over 100 million businesses across the globe so is able to offer accurate real-time analysis to protect businesses against the risk of non-payment, which helps secure business confidence. It’s this kind of protection that can help protect the UK manufacturing sector from the risk of encountering serious cash flow problems that can be disastrous in today’s difficult economic climate."
The complete Spring 2012 Atradius Payment Practices Barometer can be found in the Publications section of the Atradius website on www.atradius.co.uk