Industry Comment


Late paymentsaffecting electrical wholesalers’ cashflow


A new report from Siemens Financial Services show that late payments cause UK SMEs to miss out on over £250 billion of liquid cash flow.


By Ian Cole, Head of Invoice Finance, Siemens Financial Services U


npaid invoices and the costs associated with pursuing payment and long payment terms mean that UK SMEs, including those in the electrical wholesale sector, are


missing out on over £250 billion of liquid cash flow every year. As an integral part of the UK economy, accounting for 47% of all private sector turnover1


slow payments can threaten these SMEs’ ability


to trade, stifle appetite for growth and recruitment and, in the worst cases, lead to insolvencies. As a consequence, leaving SMEs to cope with the problem is harming the economy as a whole. The electrical wholesale sector is an industry directly affected by late


payments. In 2016, the electrical wholesale and retail trade accounted for 15% of all SME employment and over a third of SME turnover in the UK private sector.2 Compared to larger companies, SMEs tend to suffer from slow and/or


late payments disproportionately due to their position typically towards the end of the supply chain. Businesses with an annual turnover of under £1 million wait on average 72 days for invoices to be paid.3 Businesses with an annual turnover of between £1 million and £10 million wait on average 53-54 days.4


This is significantly longer than the


largest businesses, which typically wait 48 days.5 The root causes for the slow payment problem are the 90-day


payment terms commonly demanded from large companies, as well as the persistent and growing trend for late payments. A recent report found that SME electrical wholesalers have average


payment terms of 42 days with supermarkets, five days longer than the average in 2015. From a survey of over 1,500 invoices it was found that almost two thirds of electrical wholesalers had their payment terms extended last year. The longest payment terms found to be offered by supermarkets was 90 days, 13 days shorter than in 2015. However, the shortest was 28 days, four times the shortest recorded in 2015.6 It is clear to see then, that late payments are an acute cause of


concern for all SMEs. In a survey of 1000 SMEs, 23% reported that late payments had put them at risk of closure.7


that risk becomes reality; insolvency trade body R3 has said that late payment is a major factor in one in five corporate insolvencies.8


For a significant proportion Quite


apart from these measurable consequences, many sources allude to the impact of late payments on SMEs’ appetite for investment and willingness to hire.9 Although many electrical wholesale companies might view outstanding bills as a drain on their cash flow, through solutions such as invoice finance they can be leveraged to unlock funding. By using invoice finance, when a company invoices their customer, up


to 90% of the approved invoice total is straightaway advanced by the finance provider, with the remaining 10% paid once their customer settles the balance.


Whilst companies will still need to ensure the eventual payment of their customers’ invoices, invoice finance provides the company with essential working capital so it can then invest in expanding its business without having to wait for bills to be paid. Invoice finance companies now provide more funding than ever


before to SMEs with funds used across the UK recently exceeding £20billion for the first time.10


42 | electrical wholesalerSeptember 2017


https://www.siemens.com/uk/en/home/products/ financing/working-capital-finance/invoice-discounting.html


1


Department for Business Innovation & Skills, Business Population Estimates for the UK and Regions in 2015, November 2015, http://www.fsb.org.uk/media- centre/small-business-statistics


2


Department for Business, Energy & Industrial Strategy, business population estimates for the UK and regions, 2016, https://www.gov.uk/government/uploads/system/uploads/ attachment_data/file/559219/bpe_2016_statistical_release.pdf


3


Asset Based Finance Association (AFBA), Smallest businesses waiting longer than ever for payment, 13 July 2015, http://www.abfa.org.uk/news/97/ Smallest-businesses-waiting-longer-than-ever-for-payment


4 5 6


ABFA, Late Payment: An Analysis by Sector, 01 May 2015, https://www.abfa.org.uk/news/92/Late-Payment:-An-analysis-by-sector


ABFA, Late Payment: An Analysis by Sector, 01 May 2015, https://www.abfa.org.uk/news/92/Late-Payment:-An-analysis-by-sector


Retail Gazette, Supermarkets waiting longer to pay wholesalers, 5 May 2016, https://www.retailgazette.co.uk/blog/2016/05/ supermarkets-waiting-longer-to-pay-wholesalers


7


Tungsten Network, Late payments put a quarter of UK SMEs at risk of insolvency, 10 August 2015, http://www.tungsten-network.com/press-releases/2015-late- payments-put-a-quarter-of-uk-smes-at-risk-of-insolvency/?id=1186


8


Telegraph, Late payments: a scourge on British SMEs, 19 May 2015, http:// www.telegraph.co.uk/sponsored/business/sme-home/ news/11615473/late-payments-scourge-smes.html


9


Telegraph, Late payments: a scourge on British SMEs, 19 May 2015, http://www.telegraph.co.uk/sponsored/business/sme- home/news/11615473/late-payments-scourge-smes.html


10


ABFA, UK businesses secure record amount through invoice finance - breaks GBP 20bn barrier for first time, 05 September 2016, http://www.abfa.org.uk/news/125/UK-businesses-secure-record-amount- through-invoice-finance- breaks-GBP-20bn-barrier-for-first-time#sthash.csJjUmHO.dpuf


11


Jason Del, Infographic: How Small Businesses Spend Their Money, 19 July 2011, https://www.americanexpress.com/us/small- business/openforum/articles/ infographic-how-small-businesses-spend-their-money/


With access to working capital SMEs in the electrical wholesale sector can look to invest in areas that have been viewed as optional extras or aspirations. For example, promotion, advertising and entertainment only account for approximately 1% of an SME’s spend; employee benefits 2.4%, and business equipment 3%. Clearly, small businesses are focusing their efforts on paying for rent (4.6%) and employee wages (19.4%).11


Nevertheless, with more cash at


their disposal, taking on extra staff, more adventurous marketing, expansion into new product or service lines, or new territories could all be within businesses’ grasps. Invoice finance is empowering electrical wholesale SMEs to tackle the issue of slow and/or late payment for themselves. These businesses are realising that their unpaid invoices can be an opportunity rather than a burden. With more and more businesses joining the trend, and given the scale of influence that UK SMEs already exert, the impact on UK economic growth can only be good. Download the Siemens Financial Services report ‘Mind the Payment


Gap’ at:


www.ewnews.co.uk


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