Challenging the late payment culture

Late payments threaten business growth, especially for SMEs.

Posted by Jenny Stewart

Chief Executive of Liverpool & Sefton Chambers of Commerce

Tue 24th, Mar

We all want to see less red tape, not more. And we’d prefer to see business disputes resolved by dialogue rather than litigation.

But all the talk in the world can’t protect small businesses from late payment and other forms of ill-treatment by big companies and public sector organisations.

Late payment is a cultural problem. It causes cash flow problems, imposes unnecessary interest charges on suppliers and it’s hard to see how to stop it.

In 2012, The British Chambers of Commerce commissioned a survey of more than 5,000 businesses. Of those, 94 per cent had been paid late and 24 per cent said that nearly half of all their invoices were settled later than had been agreed.

A third of respondents said their worst late payers were larger businesses with more than 50 employees.

Two-thirds said private sector firms were worse than public sector organisations and only a third said the opposite. The latter finding came as a surprise at the time, given that the government had given a commitment to settle undisputed invoices within 10 days.

Several big companies have recently imposed, or attempted to impose, lengthier payment terms. And this is not the only kind of abuse suppliers face: Tesco’s recent problems exposed the scale of the rebates it demands from suppliers; and Premier Foods has come in for criticism for levying millions of pounds in charges on companies that want to remain on its supplier list.

Although George Osborne didn’t mention it in his speech on Wednesday, the Budget contained a promise to extend the Prompt Payment Code, which is administered by the Institute of Credit Management on behalf of the business department.

Currently, the code has only 1,824 signatories and in February there was far from universal backing from its own supporters for plans to strengthen its terms by insisting on a 60-day maximum payment term with 30-day payment as the norm. A survey found that only 57 per cent of respondents believed the changes to be workable.

There are some glimmers of hope. Diageo recently abandoned plans to extend its payment terms for suppliers to 90 days for fear of being delisted as a signatory to the code.

And the Chancellor also promised last week that all central government departments will have to make quarterly reports about their payment records starting from next month.

Perhaps more information, and public naming and shaming of companies which ill-treat their suppliers, is the best hope for challenging the culture of late payment.

Have you experienced late payments? Contact the policy team at policy@liverpoolchamber.org.uk

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