A third of UK businesses extend payment terms over impact of rising energy costs, Brexit & COVID-19

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Research from Ivalua, a leading global spend management cloud provider, has revealed that more than a third of UK businesses (36%) have extended payment terms for suppliers in the last 12 months, due to the impact of COVID-19 (62%), Brexit (39%), and rising energy costs (38%).

The Ivalua-commissioned study, conducted by Coleman Parkes, reveals the true impact of late payments on the supply chain, with 59% of UK businesses reporting that suppliers have ended relationships with them due to repeated late payments.

Additional key findings include:

  • 62% of UK businesses say that paying suppliers late has significantly damaged relationships
  • 67% of UK businesses fear we are risking a cashflow crisis if firms continue to pay suppliers late
  • Just 38% of UK businesses are using an early payment discount scheme

“Similar to when COVID-19 hit, and now with rising energy bills, the financial strain businesses and suppliers are under means we are facing the risk of another cashflow crisis,” commented Stephen Carter, Director of Payments Strategy  at Ivalua. “The pandemic has also accelerated a shift in customer-supplier relationships, whereby companies are abandoning a more traditional transactional approach and aim at becoming customers-of-choice of their more strategic suppliers to increase the resilience of their supply chains.

“While the government has announced an energy support package for UK businesses, organisations must look beyond this to ease cashflow concerns. They must take a more strategic approach to payments, which is centred around each supplier relationship, and ensuring the value and guarantee of supply. For example, by using dynamic discounting, financing and flexible payments, organisations can secure better rates for goods, or motivate suppliers to deliver. This approach will improve supplier relationships and resilience, putting organisations at the front of the queue, ahead of short sighted competitors”, Carter concludes.

Early payment schemes are also effective – but only 38% of UK businesses are using an early payment discount scheme. This sees customers pay less than the full invoice amount if they pay earlier than the invoice payment date.

However, the study found that a third (35%) of UK businesses have a severe lack of visibility into payments, compounded by the 58% of UK businesses reporting a disconnect between procurement and finance teams, making it hard to ensure suppliers are paid on time. This lack of visibility creates further problems, with the biggest being an increased risk of fraud (64%); being unable to use payments strategically (50%); and the inability to implement milestone payments (47%).

“Timely payments are critical to gain favour with suppliers, helping to open the door to better collaboration,” concluded Carter. “In fact, 79% of UK businesses said that suppliers are more likely to collaborate with organisations that pay them on time. As businesses across all industries struggle with rising bills, it’s vital that they work to improve visibility into supplier payments and drive operational efficiencies. Using payments strategically and maintaining a collaborative relationship with suppliers will help businesses to manage a cashflow crisis, even as supply chains come under increasing pressure.”