Proposals to extend the “project bank account” and ensure payment for suppliers

January 20, 2019

The failure of Carillion, the giant construction group, owing tens of thousands of suppliers a total of £2 billion, has led to calls for better protection for small and medium-sized companies in supply chains.

Neil Skinner, owner of Johnson Bros, an Oldham-based builder who lost £176,000 when Carillion collapsed, said: “Large companies know late payment can destroy us small businesses, but they rely on this tactic to be seen to be profitable themselves. Carillion went under owing us well over 15 per cent of our average turnover and this money is much needed to help us to survive.”

The Times reports that MP Debbie Abrahams has proposed a ten-minute rule bill that would mean suppliers’ cash would be ringfenced in order to speed up payment to small and medium-sized companies and reduce the impact of a large contractor going into administration.

She explains:

“Late payment by large businesses is a massive issue across all business sectors. When payments take a long time working their way along a supply chain from the contracting authority, there is a risk that the cash could be cut off because of payer insolvency. We witnessed the catastrophic effect this has with the collapse of Carillion. The precarious position of other major government contractors like Interserve means urgent action is required.

“My bill aims to set in law the requirement that parties delivering government and public authority work, from the lead contractor right down through the supply chain, will receive payment from the same secure ‘pot’ of money”.

Ms Abrahams has campaigned for years on this subject, winning a ‘Grassroots Diplomat’ award.

The Federation of Small Businesses and the Specialist Engineering Contractors’ Group are also backing the project bank accounts (PBA) proposals hoping that they would remove the incentive for large contractors to delay supplier payments to benefit their own cashflow. Mike Cherry, the national chairman, said that project bank accounts were needed to “enable prompt payment when work is completed and prevent big companies from hoarding money to improve their own balance sheets”

In 2015 Construction News reported that Highways England, one of the largest public sector clients for construction, is using project bank accounts. It was required by government in 2012 with delivering £3.7bn of work over three years using the payment mechanism and by April 2015 there were more than 35 PBAs in operation across Highways England schemes. The outcome:

  • The average time to fund PBAs was 12 days;
  • It took a further seven days on average for payments to be made to the supply chain;
  • The average payment down to tier three level is 19 days after the assessment date.

James Hurley, who wrote the Times article, comments that though private members’ bills have little chance of success, they are influential – increasing pressure on government to legislate.






The Times, the FT and the Chancellor focus on late payment

May 13, 2018


Earlier two football clubs were commended on this site: Liverpool managed an average of 27 days, beating Arsenal’s 35. The fastest payer was Music Magpie – an online reseller of CDS, DVDs and books – averaging just five days, with 94% of invoices settled within 30 days.

Oliver Ralph (left), insurance correspondent of the Financial Times, reports that companies around the world are taking longer to collect payments from customers, leading to a growing risk that they could hit trouble as the global economy slows.

Research from trade credit insurer Euler Hermes shows that companies are accepting much longer payment terms from their customers than they were a decade ago.

The average global days sales outstanding, or the number of days it takes for suppliers to be paid for their goods or services, has grown by one-tenth since 2008 to 66 days and is likely to increase again this year.

Ludovic Subran, chief economist at the Euler Hermes, said the trend increases the risk of insolvencies. One in four is because of non-payment from customers.

He continued:

“This is one of the dark sides of the recovery. Companies are extending a lot of trust in the way that clients pay them — it is a loosening of discipline. The longer you wait, the more the risk that your clients hit trouble. When there is a cyclical downturn the companies with longer payment terms are those that get hit first.”

Companies in New Zealand only have to wait for 43 days on average, while South Africa, Denmark and Austria also recorded low numbers.

James Ashton of the Times (right) reports that small contractors say a familiar trick is to delay signing contract terms for as long as possible after work has begun in good faith. That way a purchase order cannot be raised, nor can an invoice be submitted. Only when customers have signed on the line can the clock start ticking. One small business owner toldhim about a large firm that demanded a 1% discount for 14-day payment. When the supplier said that 30 days would be just fine, she was told it was their way or the highway.

He added that Carillion, the collapsed constructor, made small firms wait 120 days for payment in order to flatter its own cash position

The company employed an “early payment facility” so suppliers could borrow against their invoices before being paid. It made a mockery of the Prompt Payment Code which asks that 95% of invoices are paid within 60 days and that firms “work towards adopting 30 days as the norm”.

Ashton points out that under new disclosure rules, larger companies are now obliged to begin publicly reporting their payment practices.

In his spring statement chancellor Philip Hammond called for evidence designed to wipe out “the continuing scourge of late payments”.

Former MP Paul Uppal (left) had been appointed as the small business commissioner to campaign for prompt payment and mediate in disputes. But though the total outstanding to small firms has fallen from £30 billion to £14 billion in five years according to the BACS payment system, the Federation of Small Businesses is still concerned about cases affecting their members.

Unless otherwise agreed, a payment is deemed late 30 days after an invoice is received by public authorities and 60 days by businesses. Thereafter, under the terms of the Late Payment of Commercial Debts (Interest) Act 1998. a firm chasing payment is entitled to charge interest of 8% above the base rate, plus a recovery sum of £40 up to £1,000, rising to £100 for £10,000 or more. However small suppliers do not insist on this because they fear that they will receive no further orders from the customer so charged..

In 2015, Tesco promised to pay within 14 days small suppliers who delivered it less than £100,000 of goods a year and kept its word, followed later by Morrisons, Waitrose and finally Asda.

As Ashton commentsOther large companies should make prompt payment as important to their image as reducing their carbon footprint and increasing recruitment diversity”




What have Liverpool and Arsenal football clubs in common with Music Magpie?

January 29, 2018


Football clubs were among the quickest to pay their suppliers. Liverpool managed an average of 27 days, beating Arsenal’s 35. Entertainment Magpie, as Music Magpie – an online reseller of CDS, DVDs and books – pre-owned, refurbished, and fully guaranteed –  was the fastest payer, averaging just five days, with 94% of invoices settled within 30 days.

Companies that have more than £36m annual turnover, an £18m balance sheet or 250 employees are now obliged to report to the business department twice a year their payment policies, practices and performance, due to concerns about the administrative and financial burdens faced by thousands of companies because they are not paid on time.

Small and medium-sized businesses may have to borrow to cover shortfalls and a shortage of cash can in extreme cases force them into administration.

SMEs are owed £14bn at any one time, according to the government. The Federation of Small Businesses says that late payment should be a top priority for government in 2018.  “FSB research demonstrates that a third of payments to small businesses are late with many turning to personal credit cards and overdrafts just to survive,” said Mike Cherry, the chairman.

Andy Bounds, Enterprise Editor of the Financial Times reports that filings at the Department for Business, Energy and Industrial Strategy (BEIS) reveal late payment of suppliers.

Most UK businesses take more than 30 days to pay their suppliers, with the average as high as 113 days. Filings by about 200 businesses show that only 29% of them manage to settle their accounts within 30 days or less on average, and that only 52% of invoices overall are paid in that timeframe.

UHY Hacker Young, the national accountancy group, which studied the filings, said the figures showed the government’s transparency push has “yet to make any significant impact on the culture of late payment”. It was reported that some businesses had standard payments terms of 120 days.

  • DS Smith, the paper, packaging and recycling group, had one of the worst records. Its recycling arm took 113 days on average to pay suppliers.
  • Waterstones, the bookseller, took an average of 69 days.
  • Clifford Chance Europe (a law firm) took 73 days.
  • Conviviality, owner of the Bargain Booze and Wine Rack chains, averaged 56 days.

None of the major supermarkets has yet reported its figures. Companies have until January or April to publish the data.

The business department said its new small business commissioner, Paul Uppal, would oversee a new complaints system and help to tackle late payments, potentially delivering a £2.5bn annual boost to the economy.

Richard Lloyd-Warne, partner at UHY Hacker Young, said: “Multiple governments have tried different ways to get bigger businesses to pay on time, including allowing them to levy interest on late invoices, and the much-delayed creation of a small business commissioner role.”

The new duty to report was “a good step” Mike Cherry, chairman of the Federation of Small Businesses said, but “changes need to go further to allow the naming and shaming of those businesses who are putting the squeeze on small firms”.




Government payment strategies boosting the working capital of corporates but jeopardising the future of SMEs

January 8, 2015


Andy Richardson, in the Northern Echo, reports on the findings of the government’s Public Accounts Committee, whose chair, Margaret Hodge, said: “Small and medium-sized enterprises have a vital role to play in the UK’s economy, yet Government is not getting the basics right when it comes to promptly paying SMEs, from which it directly buys £4.5bn of goods and services each year”.

Amyas Morse, head of the National Audit Office said: “There has been a disappointing lack of effort by government to check whether the implementation of the policy is actually helping SMEs. . .”. There was “serious concern” about the prompt payment figures publicly reported by four departments — business, defence and the home and cabinet offices — which it concluded were “overstated”:

“It beggars belief that government departments do not record the date when paper invoices, commonly used by SMEs, are first received, and that around a third of SMEs don’t get paid within 30 days by their public sector clients.

“This is despite government’s claim that it is committed to increasing the role of SMEs in providing public services rather than allowing large companies like Serco and G4S to continue dominating the market, often at the expense of the taxpayers’ interest.

THE Government is being urged to improve payments to small companies after an official report found delays across the public sector. in a third of cases, public sector clients took more than 30 days to settle up.

Mike Cherry, policy chairman of the Federation of Small Businesses, said, “It’s a scandal that thousands of businesses have gone under because of late payment, with numerous others struggling with their cashflow because of poor payment practices”.

The FT reports the NAO concluded that government practice could simply be boosting the working capital of its main contractors rather than benefiting SMEs further down the chain. A Government spokesperson responded: “The report recognises that we are making progress, but there is more to do. This year we will enforce payment within 30 days all the way down public sector contracts’ supply chains.”


To read the report click here: