One year on from the start of the credit crunch, new analysis released today by Experian, a global information services company, shows that UK businesses are now settling their bills almost four weeks after their agreed payment dates.

With businesses already using extended payment terms as a form of short term funding, this trend means that some smaller businesses could be waiting as long as five months for payment from the point of invoice for goods and services supplied months earlier.

Data insight:

At the end of July 2007, the time it took for businesses to settle their bills after agreed terms stood at 16 days. However, by the end of July 2008, this Days Beyond Terms (DBT) figure had increased by nine days to 25 days.

Experian’s DBT data is derived from its payment performance information, gained from a database that tracks 20 million transactions per month - the equivalent of £12billion of transactions each month - to indicate good and poor payment trends.

This payment performance information plays a pivotal role in Experian risk management products such as The Risk Report and Ledger360.

However, across the national DBT figure there are marked differences between some key industry sectors.

The Property sector has seen its DBT figure increase by 18 days over the year and businesses in this sector now show an average DBT figure of 38 days.

Meanwhile, businesses in the energy sector, traditionally a relatively slow paying sector, are now paying their bills on average 37 days beyond agreed terms – up from 24 days in July 2007.  The Business Services sector has seen its DBT figure increase by 13 days over a 12-month period to stand at 31 days.

The Food, Drink and Tobacco sector is another big climber. Businesses in this sector are now settling bills on average 25 days beyond terms, up from 15 days a year ago.  At the other end of the scale, Agriculture, traditionally a prompt payer is on average taking 15 days to settle bills following their due date, an increase of seven days from July 2007.

Tony Pullen, Managing Director of Experian’s Business Information division said, “as our payment performance data shows, businesses are not only taking longer to settle bills after agreed terms, but they are also extending those terms so that where they may have previously paid 30 days from invoice, they are now pushing this out to 60 or even 90 days.  The problem for smaller suppliers is exacerbated because they are often under pressure to settle their own bills quickly to secure goods and supplies essential to their business.”

Experian is advising businesses to take steps from the outset to protect themselves from poor or erratic payers by screening out poor performers from their new business activity, as well as checking for default or late payment amongst new and existing customers.

By checking their marketing databases against a pre-screened data sets businesses can take advantage of risk scoring expertise to weed out high-risk business prospects and ensure they are not targeted as part of their new business activity.

Businesses should also be checking the payment trends of potential customers before extending them credit, as well as monitoring the payment performance of existing customers, using risk management tools such as Experians The Risk Report.

In addition, to avoid becoming a late payment casualty, businesses should address issues they may have with otherwise creditworthy and sound business, that simply have a culture of late payment, by taking steps to encourage faster payment, such as moving customers on to direct payment methods, or developing more creative collection strategies.