SMEs hindered by global fluctuating payment terms

Conflicting payment terms hindering international business

SMEs are failing to maximise their trading potential because of conflicting payment practices employed by businesses globally, according to research conducted by Bibby Financial Services.

The international SME funder surveyed 1,000 small businesses and found discordant payment regimes even within regions which could be expected to have payment practices that are reasonably aligned.

In Germany the vast majority of businesses (79 per cent) require their customers to pay their bills immediately and only a minority offer credit terms which allow payment after 30 or 60 days. By contrast, businesses in the UK routinely offer credit terms of 30 to 60 days, with only one quarter (24 per cent) requiring immediate payment.

This disparity exists despite efforts by the European Commission to standardise payment terms between businesses and public authorities in the EU through its Late Payments Information Campaign and the implementation of the Late Payments Directive.

Outside of Europe, payment practices differ again. In the US, around half (46 per cent) of the businesses surveyed said they require immediate payment, whereas in Singapore 60 per cent said they offer customers the opportunity to delay payment. In Hong Kong, one-third (31 per cent) expect immediate payment and 69 per cent offer 30-90 day payment terms.

This conflicting payment landscape is creating barriers for SMEs, with around one in five  across the world stating they are failing to maximise their trading opportunities, although small firms in Germany (26 per cent) and the UK (24 per cent) struggle the most.

Stuart Dunbar, company director of UK-based Oak Exports which exports non-perishable British foods around the world and is funded by Bibby Financial Services, said: “We find that customers outside of the EU tend to pay more quickly than inside the EU. In the UK and parts of Europe, our experience is that businesses tend to have a more laissez faire attitude when it comes to payment terms.  

“It’s a bit like speeding limits; some people will reach the limit and push it further. 60 days is usually 70 to 75, 90 days can be in excess of 100.”

Simon Featherstone, global CEO of Bibby Financial Services, said: “The fractured nature of the payment landscape around the world is creating barriers for SMEs. While more harmonious payment regimes will not be created overnight, the necessary steps are eminently achievable.

“Businesses should take the time to understand payment practices in other countries and move to ensure their payment terms are aligned with local practice. Policy makers should also examine what could be done to harmonise conflicting regimes

“Taking action to remove these barriers would deliver real benefits. It would boost SME activity, create jobs and kick-start economic growth.”

Download the full report, 'Credit Terms: Holding Business Back'

Posted by on 27 January 2014.