Tax & admin · 16 November 2016

New report holds spotlight over government action on late payments

Late payments
Research has predicted that ending late payments would give average profit growth of 2.6 per cent to small firms

Effective action into the UK’s late payment culture would have saved 50,000 small businesses from folding in 2014 – saving the country £2.5bn, according to a new report from the Federation of Small Businesses (FSB).

The study highlighted the true impact of late payments to small companies, suggesting that government intervention into tackling the problem has so far failed.

The “Time to Act: The economic impact of poor payment practice” report revealed that a third of all invoices to small suppliers are paid late by larger companies – despite policies such as the Prompt Payment Code (PPC) and the proposed small business commissioner aiming to bring about a culture change with so-called “supply chain bullies”.

The research also predicted that if small companies experienced no late payments in 2016, profit growth for such firms would be on average 2.6 per cent higher – representing an extra £4.8bn in economic value.

In a statement, Mike Cherry, FSB national chairman, claimed that the research demonstrated the need to address late payments “from both an ethical and an economic point of view”.

Cherry criticised the “imbalance of power” that existed in the UK’s business culture, and said that late payments created a “chilling effect right across the economy”.

He added: “Small businesses have to run a tight ship with their cash flow, and as they struggle with increasing business costs on one hand and an uncertain domestic economy on the other, they should not also have to struggle with the stress, time and money required to chase overdue payments from corporate giants.”

In response to the study’s findings, the FSB put forward a series of policy initiatives that it says will be crucial in creating a supply chain that works for small businesses.

The organisation has called on the Department for Business, Energy and Industrial Strategy (BEIS) to end the small business commissioner consultation period and install the post immediately to represent the interests of small businesses. It has recommended that the commissioner be given powers to “name and shame” consistent offenders of late payments.

The FSB also criticised the effect of the PPC – the letter of compliance introduced by the Chartered Institute of Credit Management in 2008 to commit signatories to pay suppliers within a 30-day period. The code has so far been signed by over 1,800 larger UK businesses.

It used the new report to demand “strengthening” of the PPC – making the code mandatory for large firms, and suggesting that a “three strikes and you’re out” penalty system would “give real substance” to the PPC and force consistent offenders to come into line with its standards.

Small business minister Margot James recently acknowledged the need for a “culture change” in late payments, co-authoring a letter to all signatories of the PPC reminding them of their commitments. Despite such efforts, further research has suggested that the smallest suppliers in Britain are being hit more disproportionately than ever before.

The Asset Based Finance Association (ABFA) recently revealed that the average waiting time for receiving invoice payments by firms with less than £1m turnover hit 71 days in 2016 – almost twice as long as companies with turnover of over £500m.

Top ten worst late payment excuses revealed

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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