Late payments: the silent global trade barrier for UK businesses
We examine over 11,000 invoices to understand the extent of late payments to UK businesses by their top ten trading partner countries.
- Beyond Brexit: 43% of UK invoices sent abroad were paid late in 2019.
- US vs China: US companies took five times longer than Chinese counterparts to pay UK businesses.
- Europe: German debtors took twice as long to pay invoices. French, Italian and Spanish businesses improved on late payment to UK companies.
12th February 2020, London: Foreign businesses who bought goods and services from UK companies in 2019 paid more invoices late and took longer to settle their bills. The latest MarketFinance Business Insights1 examined over 11,000 invoices to these businesses to understand the trading relationship between UK businesses and the UK’s top ten trading partner countries2 (United States, Germany, Netherlands, France, Ireland, China, Switzerland, Belgium, Italy and Spain).
Overall, 43% of invoices from UK companies to businesses in these countries were paid late in 2019, a significant increase from 2018 when 30% were paid late. The analysis suggests that businesses typically agree 45-day payment terms from completion of work or delivery of goods. However, invoices were actually settled 17.6 days beyond these payment terms in 2019, an increase from 2018 when the delay was 16.2 days.
Overall, US companies were the worst late payers, taking an extra 51 days to settle invoices from agreed terms in 2019, up from 13 days late in 2018. Aditionally, more invoices were paid late, up from 40% in 2018 to 53% in 2019. Second only to European countries, UK businesses send the largest invoices to the US; worth an average of £40,115.
In Europe, German firms were the worst offenders. Not only did the number of invoices paid late double between 2018 and 2019 (from 36% to 71%) but delays in settling bills doubled from 14 to 32 days late. Interestingly, French, Spanish and Italian businesses halved the number of days they paid late from 24 days late in 2018 to 12 days in 2019. Invoices sent to Irish companies were the largest in value, typically worth £60,379. However, the number of invoices paid late doubled from 25% in 2018 to 52% in 2019. Though the number days they were paid late decreased from 18 days beyond terms in 2018 to 12 days in 2019.
Business owner Nick Hynes, CEO and Co-founder of digital agency Somo commented: “I’ve set up and operated several businesses across the world over the years. Doing business around the world is hectic and fascinating but is always different, in every country. You need to go in with your eyes wide open.
It’s important to be aware that not every country is as commercial and secure as the UK. It can be like standing in a warm shower and suddenly being dunked in ice cold water, shocking and unexpected. It is important to be prepared for those inevitable financial shocks.”
Rest of the world vs UK companies
- China. 84% of invoices sent to Chinese businesses were paid late, the highest amongst all countries. This has increased from 57% in 2018. However, whilst late, the number of days taken to settle an invoice (beyond terms) remained consistent at 11 days 2018 and 2019.
- Mexico. The number of invoices paid late decreased from 23% in 2018 to 17% in 2019, but the number of days an invoice was paid late increased six-fold from 8 days to 49 days in 2019.
- South Africa. Similar trends to Mexico, the number of invoices paid late decreased from 33% in 2018 to 9% in 2019. Additionally, the number of days an invoice was paid late increased almost nine-fold from 4 days to 35 days in 2019.
- India. On a positive note, the number of invoices paid late almost halved from 42% in 2018 to 23% in 2019 and the number of days an invoice was paid late decreased from 15 days to 13 days in 2019.
- Singapore. The number of invoices paid late increased from 19% in 2018 to 24% in 2019 but the number of days an invoice was paid late decreased from 15 days to 11 days in 2019. So, more invoices getting paid late but getting settled slightly earlier.
Bilal Mahmood, External Relations Director at MarketFinance, commented: “The US-China trade war and Brexit uncertainty in 2019 haven’t helped to create a harmonius global trading environment for UK businesses. Indeed, it’s quite possible we’ve lost ground as negotiaters on the world stage. An impression which has seeded its way to industry.”
“These insights will be valuable to UK businesses who are selling their goods and services abroad. It will help them plan their cash flow and working capital needs. 2020 will be a pivotal year as the Government negotiates new trade deals globally. Business owners will be hoping for swift and favourable arrangements as they plan for growth and look for new markets to launch into.
In the meantime, there are ways for businesses to fight back against the negative impact of late payments, from having frank discussions with debtors that continuously fail to adhere to agreed payment terms, to imposing sanctions on those debtors, or seeking out invoice finance facilities to bridge the gap.”
1 Analysis conducted in February 2020 reviewed 11,348 invoices sent by UK SMEs to companies in different countries between 2013 and 2019.
2 Top ten countries (listed in order, as % of total UK export): United States, Germany, Netherlands, France, Ireland, China, Switzerland, Belgium, Italy and Spain. The Pink Book. Detailed annual statistics on the geographical breakdown of the current account including trade in goods and services, primary and secondary income and transactions with Europe and the US.
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