Late payments are falling as businesses are chasing debtors more aggressively in order to ease cash flow

Late payments are falling as businesses are chasing debtors more aggressively in order to ease cash flow.

On average, businesses were paying their bills 2.06 days earlier during September, down from 23.6 days in August to 21.54 days – the sharpest month-on-month drop since December 2007, says credit reference agency Experian.

Snowden Flood, owner of the eponymous interior design company, says: ‘We had an issue with a couple of clients in the summer. One customer was four months late, so for their next order we made them pay a deposit upfront. There has now been an improvement in companies paying on time, both compared with two months ago and with last year.’

Clive Lewis, head of SME issues at the Institute of Chartered Accountants in England and Wales, says many small businesses have responded to difficulty in accessing finance and the higher cost of borrowing by focusing on cash flow. ‘Statistics on bank lending support the view that businesses are managing with less bank finance,’ he says.

Research from professional services firm Tenon Recovery reveals that the majority of entrepreneurs (86 per cent) are adopting strict initiatives to manage cash flow. Of the 301 respondents questioned, 70 per cent said they are chasing debtors more quickly to get money in.

Carl Jackson, head of Tenon Recovery, says: ‘The pool of funds available for businesses is still at dangerously low levels. Business owners are now carefully monitoring the flow of money, plugging any leaks, to ensure none is wasted during this recessionary drought.’

According to Experian’s research, late payments have improved by 1.28 days over the year to September 2008.