Late payment culture creates domino effect

Last week, two AIM companies, Avionic Services and Interior Serv-ices Group,
warn-ed the market that payment and contract delays would hurt their financial
position.

Interior Services told shareholders that it had not been paid for two
projects carried out last year and had been forced to resort to adjudication to
receive payment. Avionic, meanwhile, said its financial position had
deteriorated ‘significantly’ because certain contracts and prospective orders
had ‘slipped’ into the next financial year.

These were not the types of announcements that would make front-page
headlines, but served as a reminder of the damage that late payment can do to a
business.

News of the problems encountered by these companies emerged as credit manager
Intrum Justitia warned that small companies faced the greatest risks from the
UK’s late payment culture, where 1.6% of income was lost because of late
payment.

In its European Payment Index report, Intrum Justitia found that average
payment in the UK was 17.4 days late. The credit manager said such delays caused
a ‘vicious circle’, as companies awaiting payment did not have the cash flows
available to pay their suppliers. It also said margin squeeze and inadequate
bank financing were the other causes of late payment.

‘The vicious circle of payment delay is continuing its negative effect on UK
businesses. It is companies at the end of the supply chain that suffer the
most,’ said Shaun Purrington, commercial business unit director at Intrum
Justitia UK. ‘There is a distinction between companies that go out of business
because they are badly run and those that close shop when they run out of cash
because of late payment.’

Vivian Bairstow, corporate recov-ery partner at Begbies Traynor, said it was
‘almost inevitable’ that a company would go bust if it was continually blighted
by late payment.

‘Businesses can only succeed if they have funds, and if those funds are with
customers who are paying late, then companies are going to go bust,’ Bairstow
said.

The report said that, despite the risks posed by late payment, business
support for creating a ‘punctual payer’ benchmark was tepid. Only 26% of the
companies surveyed across Europe supported such a yardstick, with the rest
either not interested or indifferent.

‘It is disappointing that only a handful of businesses see any benefits in
being punctual payers,’ Purrington said. ‘It needs to be much greater than that
if we are to tackle this ongoing problem of deliberate late payment.’

Bairstow, however, said it was understandable that enthusiasm for a punctual
payment benchmark was muted. ‘A punctual payment bench-mark is marvellous during
good times, but if the economy hits bad times, firms will take any work, even if
there is a credit risk, to keep going in the hope that their customers will pay
eventually,’ he said.

COMPANY REPORTS

FDs at GUS and Cable & Wireless enjoy pay boosts, while BHP Billiton
prepares for tax assessment

FTSE100
GUS plc’s group finance director, David Tyler, saw his annual pay
increase from £858,000 in 2004 to £959,000 in 2005, after receiving the maximum
performance bonus possible. Tyler earned a £470,000 salary, an equivalent bonus
and benefits of £19,000. GUS, the owner of Argos and Homebase, reported a 10%
increase in pre-tax profit, which climbed from £827m to £910m.

BAE Systems has received clearance from the US Justice
Department to complete its acquisition of United Defence Industries (UDI). The
aerospace giant has now obtained all the shareholder and regulatory approval it
requires to proceed with the acquisition. In May, BAE shareholders voted in
favour of removing the impacts of IAS19, IAS32 and IAS39 to be ignored when
assessing its ability to take on debt, which enabled it to raise capital for the
UDI transaction.

Charles Herlinger, the finance head of Cable &
Wireless, earned £1.1m in 2005, enough to place him in the top 10 of
Financial Director’s earnings league table. The telecoms giant reported profits
before tax and exceptionals of £361m, a 13.6% increase.

Centrica, the owner of British Gas, has revealed that
including IAS39 in its accounts for the first time will generate a pre-tax
credit of £194m in the income statement. The energy company said the credit was
a result of sales and procurement contracts being delivered, and a change in the
forward mark-to-market position on new and existing accounts.

Mining company BHP Billiton is facing a $728m (£399m) tax
assessment by the Australian Tax Office for the 2000, 2001 and 2002 financial
years. The bill relates to failed investments in the 1990s, which were written
off and deducted from tax. BHP Billiton said it was ‘confident’ of its position
and would ‘vigorously defend the claims’. The miner added that adequate
provision for the matter had been made in its accounts.

FTSE ALL-SHARE

Scottish Media Group saw assets and pre-tax profits increase
after restating its accounts under international accounting standards. Pre-tax
profits increased from £25.3m to £37.6m, mainly as a result of the media company
no longer having to amortise goodwill.

Logistics company John Menzies said it is trading in line
with expectations ahead of its half year, despite its distribution arm trading
behind last year’s figures. The group said it had maintained profitability
growth by reducing interest costs through tight cash control and refinancing its
long-term debt.

AIM
Software group Camaxys has asked for its shares on AIM
to be suspended until it clarifies its financial position. The company said it
was in discussions with potential buyers of its software products, but has
experienced a shortfall in its working capital because of delays in the
confirmation of orders.