According to the chancellor, company audit committees, chaired by a non-executive director, would review payment practices and report on them in their annual accounts.
Promises, promises: Is this yet another empty pledge?Inna Kaushan, founder of invoicing platform Solna, believes this is a good first step but isnt enough to stop large companies using smaller ones as unofficial lines of credit. Not to mention the fact that this pledge echoes what small business ministers have been saying since 2012, if not earlier. ?(P)romises have been made to small businesses before and these have either never materialised or have been broken. So, we will have to wait and see if this new action really does help to crack down on late payments, ” she says.
According to the FSB, 58% of their members are owed up to 10, 000 in late payments from their clients. 15% are owed between 10, 000 and 20, 000, and 27% are owed over 20, 000 from their late paying clients.wed like to see the worst offenders named, shamed and fined. Having to release details of their payment practices is definitely a step in the right direction, as we will now be able to see who is consistently using freelancers and SMEs as unofficial lines of credit, ” Kaushan adds.
Addressing hypocrisy: One rule for big business, another for small?Big companies are often the first to threaten legal action if payment is late but are the last to pay their suppliers, says Kaushan. This hypocrisy is well known in the business world, yet very little has been done to enforce stricter payment terms.
everyone deserves to be paid on time for the work they do. For too long, many big corporates have been riding rough-shod over freelancers and SMEs, we need to ensure these companies play fair. Essentially, what we are asking for is a level playing field.”Carl Dammassa, business finance group managing director at Aldermore Bank sees this everyday. Aldermore’s own study conducted by Opinium Research in November 2018 revealsthat over a quarter of UK’s SMEs struggle monthly because of delayed payment from big business customers.
for too long, large organisations looked at their supplier terms as a means of financially boosting their performance at the detriment of smaller companies. We are calling for this unfair practice to end, ” he says. “We believe the government should incentivise businesses to ensure that paying suppliers late is financially not in their interest, as it is today.Mark Collings, chief commercial officer of debt finance platform, CODE Investing, notes the farcical nature of payment terms in UK’s business landscape. Late payments to smaller businesses from bigger players do not just inhibit their growth but can send them to the wall, ” he says.
it’s a farce that big businesses have been getting away with systematically paying their suppliers late for so long.More than anything, it’s the supply chain of countless UK businesses that needs a thorough spring clean.
The wider impact on SMEs
Businesses today operate at an international level, working with a network of suppliers across the globe. Any payment delays caused as a result of currency fluctuations, varied banking hours and time zones have huge implications for companies of all sizes. According to Centtrip CEObrian Jamieson, resolving the issue of late payments could contribute 2.5 billion to the UK economy, so the sooner we can do it, the better.
we have already seen a number of fintech firms join the wider efforts of larger financial institutions to develop and promote faster and even instant payment options across time zones. That said, our research shows that one in five businesses don’t think decision makers place enough value on the technology available to them, ” he says.
“Regular audits of corporate payment practices is a good initial step forward, but there should be an even greater commitment to innovation to ensure businesses big and small are equipped with the right tools and resources to succeed.
What’s next?According to the chancellor, more details about the steps the government will be taking to tackle late payments will be released in the next few weeks. In the meantime, adds Solna founder Kaushan, small businesses and freelancers also need to step up and make more use of the technology and data available to them to help them decide who is a risk, and who isnt.
Small business advice: How to avoid late paymentsLate payments are the scourge of small business, but knowing where you stand and what questions to ask can help protect you in worst case scenarios. 1. Due diligence: Know your customers When working with a new business customer, due diligence can go a long way. Before contracts or invoices are drawn up, research the company to find out if they have the means to pay, if they have assets in the UK, and finally make sure the scope of work clear and measured so there’s no room for dispute. You can start by accessing this free resource:https://www.gov.uk/get-information-about-a-company
Key questions: What is the name and trading style of the business you are working with? Are they trading under a different name Have they registered multiple businesses under the same license? If it’s not a limited company, who are the company owners?Use a credit reference agency to check up on potential customers. Can they afford to pay an invoice? The more information you have on the cash flow and credit of the businesses you work with, the stronger your position when demanding they pay on time. Another aspect of due diligence involves looking at how other suppliers of the business have fared. Are they willing to share references from other suppliers? Does the business have a Trustpilot rating? 2. Definite clear scope of work and payment terms