31st May 2023 – The UK’s larger businesses are putting pressure on their supply chains with late payments and even cash freezes as they try to protect cash flow and preserve liquidity, according to new research1 by Proactis.
The software business says a quarter of companies with more than 50 employees intend to delay supplier payments beyond the terms agreed, with a further 28% implementing a temporary payment freeze on all suppliers to preserve cash.
The move is a matter of survival for many firms. The Proactis research suggests that one in five businesses are implementing a ‘payment squeeze’ to remain viable, while one in three say they won’t be able to pay staff or complete crucial activities if they do nothing.
In total, the research showed that some 85% of major firms in the UK intend to employ some form of cash flow strategy, with over half looking into the combination of either delaying or freezing payments (53%). Re-negotiating payment terms on supplier invoices is the second most popular method (49%), followed by plans to ask for earlier payment of their own sales invoices (34%).
Business Secretary Grant Shapps announced a review into payment practices in December aimed at protecting small businesses. There is over £23.4 billion currently owed in outstanding invoices to UK businesses2.
Ilija Ugrinic is Commercial Solutions Director at Proactis: “The payment squeeze is yet another symptom of the challenging trading environment facing businesses. Cost pressures are prompting many to closely watch their cash flow as reduced liquidity threatens even the most vital payments.
“It is often a last resort, and there are more proactive ways to approach the challenge. Digital finance processes can dramatically influence the flow of payments and visibility of expenditure – if more companies turned to digital solutions rather than enforcing payment squeezes, there would be far less pressure on businesses everywhere.”
The research from Proactis suggests that some 60% of larger firms intend to reduce the payment terms on their sales invoices to 10 days or fewer in the hope of recovering cash more quickly. Around half have also extended their supplier payment terms to 30 days or more.
It also unearthed an opportunistic minority of businesses seeking to take advantage of the UK payment squeeze. Around one in seven businesses says they are freezing or delaying payments because they know their competitors are doing so and want to make the most of the opportunity.
The use of automated payments software can help to optimise cash flow, control accounts payable (AP) spend, and turn it into a profit centre. Superior control over these processes allows financial teams to spend more time on identifying potential financial pinch points and considering alternative solutions to avoid the need for a payment squeeze.
Ilija added: “Automation can pave the way for quick wins – such as gaining discounts for providing early payment to suppliers – and creates a new-found flexibility in cash flow. From preventing businesses from overpaying for products, to removing any risk of duplication or unnecessary spend, the individual small benefits that automation brings can together add up and have a sizeable impact on the bottom line – meaning the concept of a payment squeeze could become a thing of the past.”
Footnotes
- The research was commissioned by Proactis and conducted by market research and insight agency, Opinium, between the 23rd March – 4th April 2023. The research was conducted in a sample of 1,061 senior manager+ with responsibility for finance in companies of 50-10,000 employees internationally. All our respondents had the following titles: Owner/Proprietor, Partner, Chairman, Chief Executive, Managing Director, Non-Executive Director, Other board level manager/director, Other senior manager/director below board level. Specific samples by nation available on request.
- https://www.gov.uk/government/news/business-secretary-launches-review-to-prevent-small-firms-from-being-ripped-off-by-larger-companies
