Recent research has highlighted the issue of late business payments and how they can affect working capital and credit conditions.
The Baker Tilly Finance Director Survey found that 41 per cent of chief financial officers (CFOs) have encountered this problem, compared with 19 per cent in March.
According to the study, this has lead to a drop in commercial confidence, with 28 per cent of respondents predicting conditions to worsen during 2010.
Consumer activity has overtaken bank credit as a primary concern among firms with 35 per cent citing the former and 29 per cent the latter.
Partner and head of mergers, acquisitions and private equity at the firm Rob Donaldson said the findings could prove credit conditions are easing.
"Despite some positive signs of a slow recovery, times will remain tough for business over the next year and CFOs need to remain ever-vigilant and keep control over costs and management of working capital," he added.
The report follows comments by the British Chambers of Commerce earlier this year about the issue of late payments.
It said all companies should sign up to the UK government's prompt payment code, noting, however, that it is only a voluntary measure.
Meanwhile, a Barclays Local Business Late Payments report found small and medium-sized enterprises are owed £1.2 billion on any given day due to suppliers and customers defaulting on paying up.
Commenting on the news, PA Consulting Group's Simon Fogden said: "There has always been an unhealthy tension between suppliers wanting early payment and buyers wanting to improve terms to enhance working capital. With the continuing economic crisis this tension has significantly heightened.
"The natural tendency for business is to hold back payments but this usually damages supplier relationships, adversely impacting supply chain, as suppliers product quality and delivery consistency suffer and increasing costs to the business in the longer term either through late payment legislation charges (seven per cent plus current ECB Rate) or through unfavourable prices due to contingency and/or credit ratings.
"The current climate presents a real opportunity to strengthen the relationship and get closer to your suppliers. There are a number of options available to companies but a key requirement is ensuring the buying organisation has its own house in order in terms of purchasing and invoicing and is able to pay as soon as possible - i.e. in days. Improvements being undertaken by our clients include dynamic discounting and supply chain finance (also known as vendor finance)."
Dynamic discounting enables the buying organisation to integrate real-time with suppliers to agree and record a discount from the supplier for immediate payment. Supply chain finance is where the buying organisation’s bank pays the supplier early and the buyer pays the bank to their agreed terms ensuring all parties maintain or improve their credit ratings.
To discuss further how PA can support you transform the performance of your finance function please contact us now.