A new report by trade credit insurer Atradius has found that the COVID-19 pandemic led to a “deterioration” of payment practices among businesses in the UK, but that more businesses have also proactively adapted to faces these challenges head-on.
According to the Atradius UK Payment Practices Barometer, as much as 60% of the total value of B2B sales in the UK are made on credit, with 43% of businesses increasing the amount of sales made on credit by a third since the pandemic began. Some 65% of businesses indicated that their primary reason for offering credit is to generate sales in the domestic market, while 24% said they grant credit to stay competitive, and 11% said they did so to offer a source of short-term finance to B2B customers. However, 38% of businesses said they needed to turn down requests for trade credit due to worsening customer payment behaviour.
Instances of late payments are on the rise, Atradius found. Since the pandemic started, the proportion of late payments has increased, with businesses reporting 47% of the total value of invoices are paid late. By comparison, only 26% of invoices by value were paid late prior to the pandemic. About 45% of business also reported that they are waiting an average of 20 days or longer to turn overdue invoices into cash; last year, that number was just 14 days on average.
Atradius also noted that the pandemic has increased the risk of non-payment. UK businesses surveyed said that 5% of the total value of receivables was still outstanding at 90 days. Businesses also reported losing an average of 63% of the value of receivables which remained unpaid by the 90-day mark. The report also found that as much as 8% of the total value of receivables was written off as uncollectable since the start of the COVID-19 outbreak – this is equivalent to £8 in every £100 billed.
Payment terms have also changed thanks to the financial difficulties created by the pandemic, the report noted. Some 48% of businesses surveyed have granted extended payment terms, giving their customers an average of 30 extra days to pay. In 2019, 91% of businesses offered 30-day maximum payment terms, but that number dropped to 78% during this year’s pandemic. Only 4% of businesses have confirmed that they offer terms of over 90 days during the pandemic.
Businesses have had to adapt to avoid liquidity shortages during the pandemic; about 48% of businesses surveyed increased time, cost and resource to collect outstanding invoices during the pandemic, while 39% reported more frequently sourcing customer credit information to assess creditworthiness. Atradius also found that 49% of businesses are now sending more frequent outstanding invoice reminders, while 64% offer discounts for early payments. Another 46% indicated that they plan to use credit insurance to protect themselves from non-payment.
“The COVID-19 pandemic arrived at a time when the business community in the UK was already working hard to accommodate the challenges and uncertainties posed by Brexit,” said Atradius UK head of commercial James Burgess.
Burgess added that although the report holds some optimism for the business community, the upcoming Brexit presents another hurdle for firms across all sectors to overcome.
“While uncertainty surrounding the progression and consequences of the pandemic continue to weigh heavily we are also now close to December 31 and the end of the Brexit transition period,” he said. “Businesses will need to be prepared for further challenges and take steps to protect their receivables while also seizing opportunities to trade and grow.”