Firms take twice as long to pay bills

BUSINESSES are doubling the time it takes to pay their bills as the recession bites. A report from Creditsafe, the business and credit information experts, finds the average number of creditor days, those taken to clear invoices, has effectively doubled from 9.76 in 2006 to 18.98 in 2008.

Creditsafe Ireland managing director Billy Spence said this represents a dangerous threat to the liquidity of creditor businesses in Ireland, already facing far tougher conditions with bank lending greatly restricted.

“The impact of the financial crisis is clearly being felt across businesses in all sectors, with companies holding onto money in an effort to maintain their own liquidity,” he added.

Mr Spence said the trend has big implications for business cash-flow and could see a knock-on effect of delayed payments for suppliers and employee wage payments.

“The worry is that this increasing trend of late payment could cause the failure of those businesses that rely on constant cash- flow. With access to credit from banks increasingly restricted, a greater number of businesses will be relying on efficient payment from those they trade with and any exacerbation of this trend could see many companies going under.

“The nature of the problem is such that late payment from one company inevitably damages the liquidity of the next, making prompt payment from them to their suppliers less likely,” he added

Mr Spence said businesses can mitigate against the risk of late payment by addressing the terms and conditions they offer at point of contract, incentivising prompt payment, and by putting in place systems that more efficiently chase customers.

“Companies can insert penalty clauses with incremental interest charges and if necessary turn to legal recourse to ensure they accrue monies owed.”