Businesses in UK manufacturing are waiting longer than any other sector to get paid by their buyers, according to a report by Atradius.
The company’s recent Payment Practices Barometer revealed that during the first quarter of 2012 the manufacturing sector waited on average 32.4 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 four percent of payments that were written off as uncollectable in the UK. Despite this, Atradius found that 45.6 percent 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.
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 percent versus 38.6 percent 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 says that 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.