The proportion of IT suppliers waiting more than 100 days for payment has more than doubled in the last five years, rising from 5.6% of all suppliers five years ago to 12% of all companies reporting payment days now, according to research by BNP Paribas Leasing Solutions. In the last year alone the number of companies reporting payment days of 100 and over rose by 30%
BNP Paribas Leasing Solutions adds the average number of ‘debtor days’ for companies selling IT software and equipment to business customers is now 54, far longer than the 30 day payment term promoted as standard by the Government’s Prompt Payment Code.
Late payment by customers damages businesses by impacting their cash flow, limiting their ability to meet regular fixed costs such as rent payments or monthly salaries, preventing them from making investments, or even putting them at risk of insolvency should there be a further deterioration in payment days. Putting systems in place to chase late payments also adds extra costs. Many IT suppliers are reluctant to put pressure on customers to pay outstanding invoices because they are concerned that it may sour the business relationship and result in the loss of potential repeat business.
The research shows that one IT supplier this year reported waiting a year on average before receiving payment.
BNP Paribas Leasing Solutions says that with levels of capital investment by businesses still relatively subdued, businesses may be offering extended payment terms to customers as a sales strategy. Others may be reluctant to pursue outstanding debts in case of damaging future sales opportunities.
Offering leasing to customers frees IT suppliers from the impact that delayed payments have on their cash flow, as the lender usually pays the supplier as soon as the customer receives the goods, and bears the risk and cost of following up on payments.
Tristan Watkins, Country Manager, BNP Paribas Leasing Solutions said: “Right now IT suppliers should be seeing plenty of sales opportunities. We have record employment with 31 million in work at end of March, and business capital investment growth is starting to pick up.”
“However, IT businesses that want to take advantage of these opportunities need to have the cash to invest in marketing, new hires, training, even M&A if they want to expand quickly into new markets.”
“Using leasing as part of their package helps IT suppliers to secure sales without forcing them to choose between potentially weak cash flow because of late payment or reduced profit because they have had to expand their credit control activities or turn customers away.”