Payment terms are getting longer

Published: 26th June 2020

Increasing payment terms are negatively affecting cash flow, the lifeblood of the UK's largest business ecosystem.

Has your business been affected by increased payment terms? Have you benefited from up front payments from customers? If so, we’d love to hear from you. Tell us more about your experiences here.

The term SME (small and medium-sized enterprise) is thrown around on a daily basis in the media and in parliament. Not much is done, however, to help SMEs in their struggle to get other businesses and large corporations to pay what is due to them in a timely manner. In fact, reports show that payment terms have historically been increasing, putting a huge strain on the cash flow management of small businesses.

Following the early economic disruption that was caused by the Covid-19 Global Pandemic, it was right that the Cabinet Office encouraged public entities to continue paying their suppliers promptly and as early as possible. There was equally strong encouragement from the government for suppliers to remain transparent and continue paying employees and contractors, utilising the support of initiatives such as the Job Retention Scheme and the Bounce Back Loan Scheme where necessary.

Whilst public services have excelled in paying their suppliers on time (up front in many cases), the same is not true for some private entities - particularly in the retail sector. There have been worrying reports that UK retailers such as Monsoon, Accessorize, Debenhams and M&Co have extended their payment terms to suppliers. Payment terms of 120 days are now standard terms for some retailers as they, themselves, battle with reduced revenue and cash flow pressures. Grocery retailers, on the other hand, have vowed to accelerate their supplier payments: Sainsbury’s and Aldi, for example, are currently paying supplier invoices up front.

For SMEs that are not fortunate to have such favourable payment terms with their customers, selective invoice finance may be the best tool to overcome immediate cash flow constraints. Government schemes have given SMEs a much needed short term boost to their cash position, but most will now require a funding solution that does not involve further debt being accrued by the business. Muse provides flexible invoice financing options to business owners by buying invoices for a small fee - unlocking cash in as little as a few hours. Despite the many benefits of flexible invoice finance, only 1% of UK SMEs take advantage of this funding option.

Click here for more information on Muse Invoice Finance or check out our free cash flow forecasting app below:

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