SME suppliers forced to subsidise businesses as late payments reach £327bn

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 ‘Trade credit used as a blunt instrument’

Once again we return to this subject after asking – at the end of May – Will government ever help SMEs by implementing the late payment directive?

In File on 4, Jenny Chryss recalls the long history of major high street names leaving suppliers and sub-contractors out of pocket because of delays in settling accounts.

Figures produced by the Department of Business, Innovation and Skills revealed that 85% of small and medium businesses had experienced late payment in the last two years. Some small firms are having to cut back on staff because bills still aren’t being settled promptly.

prompt payment code

Only a minority of companies have signed up to the Prompt Payment code – BIS “No comment”

File on 4 reported that serious problems are occurring with local authorotes and private business. Big contractors who get paid on time, often delay before passing the money down the supply chain to smaller companies supplying goods and services.

credit management centre logo

Norma Cohen, the FT’s Economics Correspondent points out that the sums lent to UK businesses by suppliers in the form of late payments are the biggest source of credit in the economy.

prof nick wilson credit managementAnd according to Charting the Trade Credit Gap, a report by Professor Nick Wilson of the Credit Management Research Centre at Leeds University and Trulia, the credit research group, trade credit between non-financial companies was 20% bigger than outstanding bank credit, about £327bn in 2012. His study found that the delays between delivery of goods and receipt of payments were widening, despite the economic recovery.

“We believe this is a serious threat to the UK economy,” said Jon Keating, European managing director at Trulia. “Trade credit is being used as a blunt instrument by many companies, with outdated practices poorly adapted to today’s new economic environment.”

late payment graphicThe EC’s Late Payment Information Campaign has been running since 2012 and in the Queen’s Speech, the British government announced proposals to deal with the problem of late payment of bills by larger companies. The problem has not been reduced.

Simon McVicker, director of policy and public affairs, PCG – the largest association of independent professionals in the EU – comments in Business Zone:

“All businesses, including freelancers with bills to pay, rely on cash flow and are too often hampered by late payers. Talk of changing the ‘culture of payment’ among larger firms will only go so far in addressing the problem.

In order for it to be effective, the Prompt Payment Code must be compulsory for large companies and it must include sanctions for the worst offenders. A ‘comply or explain’ system for payment terms is a start, but in order to stamp out the issue once and for all, more decisive action needs to be taken.”

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