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Half of businesses admit to paying suppliers late

As new legislation requires companies to report their payment policies and practice, new research finds that late payment is still widespread.

Research by Tungsten Network and the Institute of Finance and Management (IOFM) has found that 47% of businesses admit that at least 10% of their payments to suppliers are made after the agreed payment terms - typically 30 to 60 days.

Tungsten Network and IOFM have developed The Friction Index to help businesses identify the causes of friction within their processes. Its survey of businesses has found that 16% of firms say a fifth of their payments are late; only 5% of businesses always pay suppliers on time.

The Index has found that businesses identified the following issues as the biggest challenges when it comes to paying suppliers promptly:

  • Slow internal processes (64%);
  • Lack of automation (39%);
  • Administrative errors (27%);
  • Team capacity to manage the volume (20%);
  • Managing cashflow (16%).

The research comes as new UK law requires companies to report on their payment policies, practices and performance. Businesses with an April year-end will have to report as early as November 30, 2017.

Richard Hurwitz, ceo of Tungsten Network, said: “There is a common misconception that these late payments are solely as a result of managing working capital or businesses holding onto their funds for as long as possible. Our research shows that when it comes to late payments, clunky internal processes and slow paper-based systems are the predominant causes, leading to friction in the supply chain.”

Brian Cuthbert, IOFM executive director, said: “Late payments negatively impact working capital, economic production and partner relationships. The Friction Index reveals that the problems caused by late payments can be eliminated through automation.”