Stagflation fears: UK businesses brace for jump in late payments during second half of 2022

The seventh edition of the EPR for the United Kingdom, published today, clearly illustrates the pressure that UK businesses are feeling.

Weakened by the Covid years, businesses now face the challenges of inflation, rising interest rates and a cost of living crisis. More than half expect late payments to jump this year but a similar proportion say they do not have the in-house expertise needed to successfully manage the impact of inflation on their business. UK businesses are battening down the hatches and are less likely to prioritise growth than their European peers.

Key finding 1: Inflation and interest rates are creating challenges

Across Europe, growth is slowing down while supply-chain disruption and soaring energy costs drive inflation at a rate not seen for decades.

• Almost 6 in 10 companies are worried that the risk of late payments will grow this year, largely because of inflation, increased regulation, and rising interest rates.
• Respondents admit they are struggling to manage the impact of inflation on their businesses. More than half of UK businesses say it is preventing them from growing the business (51%), meeting wage demands (57%), and paying suppliers on time (60%).
• Almost 6 in 10 businesses are becoming more cautious with their borrowing and spending plans, as they expect interest rates to rise more than once during the next 12 months.

“Concerns are rising as inflation is accelerating and growth is flattening. If this trend is not broken, we could be facing a period of stagflation; contracting economic output combined with high inflation. On a positive note, labor markets across Europe have continued to strengthen this year, although low unemployment rates could lead to further upwards pressure on wages,” says Anna Zabrodzka-Averianov, Senior Economist at Intrum.

Key finding 2: Strengthening cash flow and managing credit risk at the top of the agenda

Liquidity, cash flow and credit risk management are the main strategic priorities for UK businesses as they seek to secure their financial positions.

• 8 in 10 UK companies state that improving credit risk management is a strategic priority for the year. A similar share mention strengthening liquidity and cash flow as well as reassessing contracts with core suppliers and partners as top priorities.  
• Half of the surveyed businesses report that they are weaker now than before the outbreak of the pandemic. At the same time, more than 6 in 10 say that the pandemic has motivated them to becoming better in managing risks related to late payments.

Key finding 3: Year on year, businesses increasingly see late payments as a significant barrier to growth

Late payments are hindering the growth of UK companies, hampering the economic and social development of the economy.

• A third of companies say that late payments are prohibiting growth of the company.
• 2 in 3 businesses say faster payments from their customers would help them improve their sustainability performance, whereas 6 in 10 say it would help them grow by expanding their products and services.
• More than 8 in 10 UK businesses have been asked to accept longer payment terms than they feel comfortable with over the last 12 months.