More than two-thirds of UK businesses are grappling with increasing late payments, supply chain disruptions and bad debt write-offs, according to a survey by insurance broker Marsh.
Marsh said in a report published today that 85% of businesses reported late payments from customers have risen over the past 12 months, while 75% have written off more bad debt and 70% have faced greater financial exposure due to supply chain instability, following a survey of 1,000 chief executives and finance directors carried out in April this year.
More than two-thirds of respondents also expected their exposure would continue to rise over the next 12 months due to late payments, disruption and economic conditions.
Marsh said nearly all businesses surveyed believed their organisations were resilient to these risks, however, suggesting they are “begin[ning] to view elevated exposure as normal rather than high risk”.
“Businesses are no longer reacting to isolated disruption events. Many are operating in a permanent state of elevated financial exposure,” it said.
“In this environment, resilience can become less about avoiding risk altogether and more about continuing to operate despite it.”
Late payments are not a “fringe concern” for companies, the report said. Not only did 76% of respondents say they had suffered financial loss as a result, but the report found average annual collection costs had risen nearly 15% over the past year, to more than £420,000.
The UK government said in May that 38 businesses close their doors each day because they are not paid on time, tabling legislation that would put a 60-day cap on payment terms for large firms and mandatory interest rates on overdue payments.
Marsh found that 98% of businesses surveyed have responded to the current economic climate by extending more generous credit terms to customers, suggesting they are “trading greater financial exposure for commercial growth”.
“Extending credit can help businesses remain competitive, retain customers and support revenue growth,” it said. “But it can also increase vulnerability to late payment, customer insolvency and cash flow disruption. In a volatile environment, growth and risk may be moving together.”
In terms of supply chain disruption – described last month by Verisk Maplecroft as a threat to global trade resilience – around half of Marsh’s survey respondents also said supplier insolvency, financial instability and logistics disruptions were increasing financial exposure.
At the same time, almost all firms said they were more reliant on a small number of key suppliers than they were a year ago, and 25% said more than half their revenue would be at risk if one of their top five customers failed to pay.
Despite these pressures, the survey found the vast majority of companies would be able to absorb the insolvency of a major customer, are resilient to financial exposure risks and expect growth to become easier over the next year.
Part of that confidence is due to risk mitigation tools, Marsh suggested.
Ian Leslie, managing director and UK head of trade credit at Marsh, said at a press briefing today the findings show a “normalisation of risk”, where businesses “have got used to those shocks and are more adept… to be able to handle those”.
The report found that 44% of companies that use trade credit insurance were “very confident” in their ability to absorb the insolvency of a major customer, compared to 23% among those without cover.
And 60% of firms that use receivables finance programmes were “very prepared” for a significant supply chain shock, compared to 28% without.
The report gave the example of global energy and commodities companies, which “have demonstrated resilience through recent crises”, most recently the conflict in the Gulf and the closure of the Strait of Hormuz.
