Late payment rise points to role for software providers
I thought we'd just go slightly off-piste this morning, but not too far, I hope. I came across some interesting research by Euler Hermes, the trade credit insurance group, that reveals a rise in late payments.
It shows that companies around the world are taking longer to collect cash from customers. And this can increase the risk that they could find themselves struggling.
The average global days sales outstanding - DSO, the number of days it takes for suppliers to be paid for their goods or services - is up 10 per cent since 2007 to 66 days. It's likely to increase again this year.
Lengthening of DSO is widespread
According to Hermes: "This lengthening of DSO in 2017 is widespread, as it has occurred in two out of three sectors and countries. The electronics, machinery and construction sectors show the highest DSO (all above 85 days).
"On the other end of the spectrum are sectors in connection with household consumption (agri-food, transportation and leisure goods) where companies are paid a lot faster than global average."
Ludovic Subran, chief economist at the Euler Hermes, tells the Financial Times: “This is one of the dark sides of the recovery. Companies are extending a lot of trust in the way that clients pay them — it is a loosening of discipline.
The longer you wait, the more the risk that your clients hit trouble
“The longer you wait, the more the risk that your clients hit trouble. When there is a cyclical downturn the companies with longer payment terms are those that get hit first.”
Euler Hermes publishes its annual review and forecast of global average Days Sales Outstanding (DSO), based on a sample of 20 sectors and 36 countries. According Subran one in four insolvencies is because of non-payment from customers.
Late payment culture
DSO is 53 days in the UK. But the government is keen to tackle “late payment culture”. In his spring statement in March, Philip Hammond, chancellor, asked for suggestions on “how we can eliminate the continuing scourge of late payments — a key ask from small business.”
Food for thought, perhaps, for both accountants and accounting software providers.
