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Business, Innovation and Skills written question – answered on 14th December 2011.

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Photo of Jo Johnson Jo Johnson Conservative, Orpington

To ask the Secretary of State for Business, Innovation and Skills what assessment his Department has made of recent trends in the average length of payment terms by suppliers to small and medium-sized enterprises.

Photo of Mark Prisk Mark Prisk The Minister of State, Department for Business, Innovation and Skills

The Department does not hold data on the average length of payment terms agreed between suppliers and customers. There is no effective way of collecting and collating the enormous volume of formal and informal agreements that take place between suppliers and their customers every day across the UK.

However, the Department has a long-standing partnership with the UK's leading business representatives and finance organisations to develop a culture of prompt payment, and our work with them suggests that the typical payment term offered by customers in the UK is 30 days net monthly—that is, 30 days following the end of the month in which the invoice is received.

While we do not hold data on average payment terms, we do measure actual payment performance. The Department commissions Experian to provide data on customer payment performance each quarter. For payment by firms who are not in liquidation or receivership (and can therefore be considered to be live trading firms), data for the third quarter of 2011 (July-September) show that small and medium-sized firms (those with fewer than 250 employees) were paid on average 16.45 days beyond contract terms. This is half a day higher than the previous quarterly figure of 15.96 days. This is the first quarterly increase in this figure since the fourth quarter of 2010. However, the current level of late payment is still 0.2 days lower than the same period last year. This measure peaked during the recession in Q1 2009 at 20.3 days beyond term.

Experian measures payment performance based upon the terms provided by the supplier in their invoice. We know that many suppliers assume a 30-day payment period while customer terms are typically 30 days net monthly. This might in part explain the apparent difference in supplier expectation and actual payment as recorded by Experian. To enable effective cash flow management it is therefore vital that suppliers agree payment terms in advance of supply to avoid unexpected and unplanned cash flow pressures—we believe advance agreement of payment terms does not happen in at least half of all UK transactions.

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