• Payment performance tracker –
    Q2 2021 update

    Despite the significant difficulties faced by UK companies, large businesses have continued to pay their suppliers in line with previous year’s performance

Article:

Payment performance tracker – Q2 2021 update

01 September 2021

This quarter’s report focusses on large businesses that have submitted their Payment Practices and Performance reports covering the first half of 2021. As a result, it provides a useful barometer of how Brexit and the third, and most recent, COVID-19 lockdown at the beginning of this year has affected the payment behaviours of those companies deemed by BEIS to be large.

Our analysis suggests that, despite the significant difficulties faced by UK companies due to COVID-19 and Brexit, large businesses have continued to pay their suppliers in line with previous year’s performance, demonstrating a good level of resilience. Hospitality was the only sector that displayed notable delays, which is perhaps to be expected given the reporting period covered a time of significant closures and restrictions.

However, a noteworthy trend that has continued to deteriorate over the last 12 months is the number of companies submitting their reports. This quarter’s analysis has shown a consistent decline, when compared to previous years, in the volume of reports being submitted.

In line with UK Government guidance, a post implementation statutory review of the legislation is due to be published on which a consultation will be opened. We believe this to be towards the end of this calendar year. The review will be a good opportunity to feed into how the regulation could be further strengthened as we expect that the outcome will be that the legislation will continue.


The Trends

Number of companies reporting

Analysis comparing the number of Q2 submissions made with previous years shows a consistent decline in submissions, from a peak of 4,627 in Q2 2019 to 3,657 submissions in Q2 2021. This is a significant decline.

We estimate there to be around 10,000 companies captured by the regulations and that a significant proportion of these would be required to submit reports in Q2 due them having 31 December year-ends. As a result, the number of reporting entities not submitting could be as high as 1,500.

This signposts a potential issue with compliance and is likely due to a lack of focus given other priorities, possible difficulties in extracting data while working remotely or simply a lack of resource. What’s more, it is expected that those that are not reporting are likely to be the companies with poorer performance. Thus, the current trends shown may be overstating how positive the outlook is. It is our understanding that whilst BEIS has adopted a more lenient approach over the last 18 months, companies are still required to report or at a minimum inform them as to why they are currently unable to report. We expect there will be follow-ups with non-compliant entities over the coming months.

To find out if you should be reporting get in touch with one of our team.

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Participation in payment codes

Britain’s largest supermarket, Tesco, recently attracted scrutiny for their decision to resign from the Prompt Payment Code. Tesco made the decision to resign after it concluded it could not adhere to a tightening of the Code’s terms designed to expedite payment to small businesses.

As we reported in our last tracker, signatories to the Government-backed Code were told in January of this year that they would need to pay 95% of invoices from companies with fewer than 50 employees within 30 days if they were to remain on the programme, down from 60 days.

Our analysis shows that, although Tesco made the decision to resign from the Prompt Payment Code, it is not common for the UK’s largest companies to be part of payment code with only 10% currently reporting that they participate within one.

Despite this, an encouraging trend is seen within the dataset in respect of the number of companies reporting that they are part of a payment code. The percentage of the cohort reporting they participate in a code, of which the Prompt Payment Code is most common, has consistently risen within the dataset since 2017.

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Other trends

  • Across the whole dataset, the average time to pay metric is 37.5 days – a modest reduction from that reported in Q2 2020 and Q2 2019, being 38.2 and 38.1 respectively
  • The Manufacturing sector, as has been the case in numerous previous trackers, remains the sector with the weakest payment practices reporting metrics. Q2 2021 figures show companies within this sector have an average time to pay metric of 49 days and nearly a third of all invoices are not paid within the agreed terms
  • When looking at individual sectors, as mentioned and expected, Hospitality has deteriorated the most. A similar picture is reported for the Arts, Media and Leisure sectors
  • Government continues to lead the way with strong metrics in payment practices and performance in Public Sector and Defence.

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Conclusion

Although the Hospitality industry showed weaker performance than in previous years, our analysis suggests that the majority of industries have demonstrated a good level of resilience despite the significant difficulties faced by UK companies with COVID-19 and Brexit.

Our analysis does, however, highlight a potential issue with compliance overall and suggests Payment Practices reporting may have fallen down the agenda at many large businesses, possibly due to a lack of focus given other priorities.

Communication with key customers and suppliers are critical over coming months. As always, we encourage businesses to regularly review the data set in relation to key customers and clients as it provides a good indication of payment performance trends and potentially highlights possible credit risk. We will continue to monitor the trends over the coming months.

Should you have any questions, please feel free to contact Jenny Shutt or Tim Foster.

What should your businesses be doing?

The current climate offers an opportunity for businesses to rethink their payment practices in the spirit of collaboration, as well as to optimise overall working capital management to counterbalance any impact from extended payment periods.

These are our three key recommendations for rethinking your payment practices:

  1. Fully understand your obligations or potential future obligations for reporting and ensure a process is defined for accurate and timely reporting
  2. Use payment practice data to drive improvement in procurement and finance processes to ensure timely payment
  3. Review your payment term model to support healthy cash flows in your supply chain

Find out more how we can support your businesses working capital strategy.


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