Our records show major complaints about late payment dating from 2008. Typical is the BBC 2011 report that SMEs were owed a record £33.6bn in late payments, according to new research by BACS – the highest figure since records began in 2007. SMEs were owed an average of £39,000 and waiting up to two months to get paid.
More than 25% of West Midlands firms polled in August by the Birmingham-based company Bibby Financial Services said late payment of invoices continues despite the introduction in March of the EU’s Late Payment Directive, which aimed to change the late payment culture in the business world and force companies to cap maximum contractual periods at 60 days.
The Forum of Private Business reports that the new rules are simple – debtors will be forced to pay interest and reimburse the reasonable recovery costs of the creditor, if they do not pay for goods and services on time. They are targeted at larger firms and the public sector and could release £150bn to smaller businesses throughout Europe. More detailed information is available on the FPB site – follow the link above.
Central government practice improved
Central government has improved its practice and made a commitment to pay all Whitehall invoices to small firms within 10 days under an initiative called the Prompt Payment Code. The FSB wants all public agencies to follow the lead of central government.
Late payment in the UK continues to deteriorate
While Bacs Payment Schemes estimates that more than £30 billion is currently owed to SMEs in overdue payments, new research from credit reference agency Experian found that UK businesses paid their invoices 24.58 days beyond agreed credit terms during the second quarter of 2013, one day later than the same period last year. Driving this decline were the country’s largest companies, employing more than 500 members of staff, whose average payment time increased from 30.91 days beyond terms to 34.19.
Government threats failed – will fines work?
In August the Hilton-Baird business finance blog reported that Vince Cable is now considering ways to fine late paying companies as the government looks to address one of the greatest challenges facing British businesses at present. He has asked officials to look at whether a levy could entice ‘tardy’ companies to improve their payment practices, after threats to name and shame members of the FTSE 350 who refused to sign up to the voluntary Prompt Payment Code were ignored by all but 72 of the FTSE 100 and 71 of the FTSE 250.
So what is the answer?
The Post quotes Bibby’s West Midlands spokesperson Sharon Wiltshire: “Firms should seek advice on the best means of getting any overdue payments in. But the legal enforcement of legislation is a problem for the small and medium company:
- It is too expensive.
- It is too time-consuming.
- There is a reluctance to take an action which will lose them a customer.
Go it alone? Or can our readers from countries on the right advocate better systems?
My engineer neighbour tells me that in his dealings with Holland he found the Dutch engineering industry’s system works well. 30% of the full amount due is paid immediately, and then 30% is paid on completion of the job. The final amount is deemed to be the profit and follow later within a stipulated time frame. This does help to avoid the cash-flow problems afflicting those in this country who often have to wait for three months – and more – before any payment is made.