Late payments improving – Action for NAMs

The latest Late Payment Index from Experian®, the global information services company, reveals that UK businesses paid their bills nearly 1.3 days earlier in Q3 2012, compared to the same period last year.  In July to September this year, firms paid their overdue invoices 24.88 days after agreed terms, compared to 26.17 days during the previous year (Q3 2011).

Food retailers showed the most significant improvement, paying their invoices 29.15 days after agreed terms, compared to 34.21 days in the same period last year.

Still a way to go...
Whilst suppliers will obviously be grateful for this average 5-day improvement by retailers, your finance department will remind you that invoices are being paid 29.15 days later than agreed. Think about it, you are delivering some SKUs daily, the retailer is holding average stocks of 2 weeks, and is getting cash from the shopper...

In other words it is vital, especially in this ‘post-recession’ era, to keep up the pressure for on-time payment.

Action: 

• Quantify the cost of financing agreed credit days
• Calculate the cost-benefit of paying settlement discount
• Calculate the cost of the additional late days (checking that you have had your fair share of the five day average improvement in days sales outstanding, from all customers!)
• Calculate the total cost of financing the credit you give your customer, and work out the equivalent in incremental sales required to cover the cost
  (i.e. if you make 8% net on your customer’s business, you need incremental sales of £12,500 sales to cover each £1,000 you give the customer )

Now join the queue outside the buyer’s office….(why not optimise the queuing time by checking out NamCalc?)