The Government must do more to tackle late payment

A group of leading organisations have joined together to urge the Government to tackle the growing problem of late payment in order to help small firms survive, grow and drive economic recovery.

The industry bodies, including those representing UK-based suppliers, have written to the Business Minister, Mark Prisk, to call for a plan of action to address late payment, which decimates small firms’ cash flow.

The group, which is supporting the Government’s new ‘Finance Fitness’ campaign, believes any plan to encourage better payment practices should include the following measures:

  • Confirm that the EU Late Payment Directive making 30-day payment terms mandatory, in the absence of any specified/agreed payment terms, is being brought forward to 2012 as originally stated and ensure any new legislation prevents suppliers being coerced into agreeing to vary payment terms against their will
  • Given that small businesses suffer serious cash flow problems as a result of late payment from large customers and public sector bodies, impacting their ability to pay their own suppliers, ensure that the Directive is implemented in a flexible way to account for this ‘domino effect’.
  • Clamp down on large companies taking ‘prompt payment discounts’ and imposing retrospective changes to payment terms and conditions that are not contractually agreed.
  • Pledge to continue with the UK’s public sector 10-day and 5-day payment initiatives, and ensure they are embraced by more local public sector bodies across the country and that prompt public sector payment is passed on down the supply chain. Indeed, to give added surety to those in the supply chain, the requirement in central Government contracts for contractors to pay their sub-contractors within 30 days should be extended right across the public sector.
  • As part of this, introduce a national league of local authority payers including incentives to encourage councils to perform.
  • Strengthen the Prompt Payment Code, including requesting businesses to sign up to the Code – exploring ways of making it an ‘opt out’ rather than an ‘opt in’ arrangement – and calling for examples of where it has been breached.
  • Require FTSE companies to report more detailed information on their payment times.
  • Use the public procurement process to promote best practice, assessing evidence of prompt payment via Pre-Qualifying Questionnaires (PQQs) and avoiding using businesses with over 250 employees if they are notoriously bad payers.
  • Under the principle of more open data, work towards a culture of more transparency and standardisation of financial information for firms and financial organisations, including credit rating agencies, in order to help small businesses better establish their creditworthiness and properly assess the payment credentials of companies with which they consider trading.
  • Allow the Groceries Code Adjudicator to impose financial penalties on retailers who are found guilty of treating their suppliers unfairly.
  • Consider ways of encouraging and supporting more suppliers to pursue interest on late payments under the Late Payment of Commercial Debts (Interest) Act 1998.

A full list of the organisations backing the late payment campaign, and which have signed the letter to the Government, is:

Graydon UK Ltd; Lloyds TSB Bank Plc; the Asian Business Federation, the Brewing, Food and Beverage Industry Suppliers Association; the British Home Enhancement Trade Association; the British Printing Industries Federation; the Business Woman’s Network; the Federation of Master Builders; the Federation of Petroleum Suppliers and the Forum of Private Business.

Backers also include the Institute of Chartered Accountants in England and Wales; the Association of International Accountants; the Institute of Credit Management; PCG – the Voice of Freelancing; the National Association of Commercial Finance Brokers; the National Farmers’ Union; the National Pig Association and the Tenant Farmers Association.

New data from Graydon UK, a credit reference agency, shows that 76% of respondents believe the Government is not doing enough to protect UK businesses from late payment.

This is despite 51% reporting that the problem has become worse during the past year, 45% that it could threaten their ability to invest in their businesses and 20% that it could prevent them from continuing trading.

In addition, recent research from the payment body Bacs shows that late payment to small businesses, mainly originating from large companies at the head of supply chains across a broad range of sectors, has hit an all-time high.

The company’s figures show small and medium-sized enterprises (SMEs) are now owed a total of £33.6 billion in outstanding invoice payments – a rise of 10% in the last 12 months and the highest figure since records began in September 2007.

This is backed by recent research from the information company Experian, which found that late payment among UK firms of all sizes increased by almost a day on average during July, August and September 2011, compared to the April to June period.

Yet the same figures show the UK’s smallest businesses – those with one or two employees – managed to limit their late payment of bills to just half a day, representing the lowest rise during the period.

Further, with the use of credit checks more than doubling since last year in response to increasing late payment, a survey from Experian and the Institute of Credit Management (ICM) has found that small firms are more than twice as likely to suffer as a result of significant variations in credit scores.

“There is mounting pressure on the Government to crack down on the growing corporate late payment culture, which is already a huge problem for small businesses and is in danger of becoming endemic,” said Phil Orford, Chief Executive of the Forum of Private Business.

“Late payment and enforced retrospective changes to payment terms and conditions force firms out of business, plain and simple. It is time to tackle the problem once and for all so that prompt payment becomes the norm, unless there are good, justifiable reasons otherwise.

“In addition to the actions we want ministers to take, we recognise there are proactive steps available to business owners, including implementing proper credit management and credit checking procedures, but there is clearly a culture of fear when it comes to naming and shaming large late payers.

“We are also urging anyone subjected to this kind of treatment to tell us about it – we’re not afraid to take these companies on.”

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Call to place micro businesses in the spotlight following new late payment figures

Groups unite to recognise role of small employers in driving job creation and growth

 Calls for a special day to recognise the role played by small employers in the UK’s economy have intensified following new research showing that the smallest micro businesses are leading the way in tackling late payment.

The Forum of Private Business, Wanobe.com and The Business Woman’s Network have joined forces to campaign for a ‘micro business day’ dedicated to recognising the economic importance of UK firms employing fewer than 10 staff.

The campaign has gathered pace following new research from Experian covering the third quarter of 2011 which shows that, while average late payment time for all UK firms went up by almost one day, to 26.13 days, employers with one or two staff were able to limit the rise to just half a day – the smallest increase recorded during the period.

However, other micro businesses taking part in the survey were less successful. Those with between three and five employees saw average payments beyond agreed terms increase by more than a day to 23.01 days – with only medium-sized firms and large businesses in the 51–100, 101–500 and 500-plus employee categories faring worse.

In addition, Firms with 6–10 staff experienced average late payments of slightly less than one day.

“The jobs that will drive economic growth are expected to be created in micro businesses so it is important that we place the political spotlight squarely on them and make sure it stays there – that is why we are calling for a micro business day to highlight the crucial role played by the UK’s smaller businesses,” said Jane Bennett, Head of Campaigns at the Forum, which provides the secretariat to the All-party Parliamentary Micro Business Group.

“It is time for the Government to stop talking micro and thinking macro and instead focus on the real issues of the smallest businesses.

“Late payment is a huge issue, particularly for small businesses. While it is pleasing that the smallest micro businesses seem to be leading the way in minimising the problem, others are less able to do so – perhaps because employment law bureaucracy means they simply have less time to chase outstanding payments.”

David Noble, Managing Director of the online business knowledge market Wanobe.com said: “A major problem facing the UK’s micro businesses is how to chase money owed to them without upsetting a customer relationship – and possibly losing business as a result.

“It is dilemma micro businesses must solve every day and their creativity and perseverance in dealing with such issues, which enables them to survive and retain employees, is what makes them the real heroes in our marketplace.”

Mandie Holgate, of The Business Woman’ Network and a leading business coach, said: “Micro business owners aim to respect their suppliers and customers, appreciating the critical impact cash flow has on small businesses.

“They also aim to work in unison and aim to source locally, thereby supporting local economies and communities – a practice that could benefit from being copied on a larger scale, again showcasing the ways in which the micro businesses of the UK need to be turned to more and more as a resource for practical business solutions that work and will see us through these tough times.”

According to the Experian data, the North West of England is the worst region for late payment by far, with firms waiting an average of 36.72 days beyond their agreed terms.

Next is London (28.69 days), followed by Scotland (27.19 days), Yorkshire (26.65 days), the East of England (26.12 days), the East Midlands (25.72 days) and the West Midlands (25.50 days).

North East firms wait on average 24.42 days for payment beyond their agreed terms, followed by Wales (24.28 days), the South East (20.83 days), Northern Ireland (20.05) and the South West (18.18 days).

Sectors with the worst average payments made outside agreed terms are postal and telecommunications (46.62 days), leisure and hotels (35.91 days), food retailing (34.33 days).property (34.12 days) and textiles and clothing (30.50 days).

Industries with relatively better average late payment times include agriculture, forestry and fishing (12.27 days), oil (15.64 days), spirits, wine and tobacco (16.84 days), servicing and repairs (17.77 days) and insurance (19.78 days).

According to the payment body Bacs, small firms in the UK are owed approximately £24 billion in outstanding invoice payments.

The Forum is campaigning for better payment practices as part of its Get Britain Trading campaign. For more information call 0845 612 6266 or visit www.getbritaintrading.co.uk