The stark prediction, based on restricted availability and rising costs of bank finance, means businesses are reviewing their payment relationships with suppliers to see them through the “credit crunch”.

Management of both new and established firms will increasingly need to seek alternative sources of funding to maintain working capital and reduce dependency on their finance providers, according to analysts.

Managing the trade credit cycle by getting paid before having to pay a supplier is a well-established practice for managing working capital needs, but for many companies, this is the only viable option left open to them.

This will lead to an increase in requests to suppliers to extend credit periods, with the subsequent knock-on effect along the supply chain.

Shaun Purrington, commercial director of Atradius UK and Ireland, said: “We have seen a significant surge in businesses approaching their suppliers with requests for extended trade credit as a lower cost alternative for funding shortfalls in their working capital.

“It is not unusual for credit terms to have lengthened from 60 days to 150 days as firms rely more on trade credit arrangements as an alternative to short term borrowing from banks.” He added that this could, over time, significantly impact the trade credit dynamics within certain sectors.

“However, while increased credit terms provide some working capital headroom for the business, waiting longer for payment presents a longer horizon of risk for its suppliers,” he said. “And, if the customer pays late or not at all, it could be disastrous for its own cash flow.”

Mr. Purrington said that suppliers who are being asked to extend credit terms should always agree to these in writing before trading and never approve a longer credit period than they can afford.

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