Calls for tougher stance on late payments as small businesses count the cost
- Credit: Archant
East Anglian politicians, accountants and business leaders are calling for a clampdown on late payments which put smaller firms at risk as the government looks at what measures can be taken to ease their pain.
Organisations in Suffolk and Essex are backing a national campaign aimed at beefing up rules around the longstanding issue, which can have catastrophic effects with some firms’ cashflow put under severe pressure.
The Association of Accounting Technicians (AAT) says tens of thousands of small businesses collapse every year because of late payments and many more cannot invest, grow or employ more staff because they haven’t received money owed.
It wants the Prompt Payment Code to be made compulsory for companies with more than 250 staff, with payment terms halved from a maximum of 60 days to a maximum of 30 days, and a financial penalty regime for persistent late payers, enforced by the Small Business Commissioner.
The Department for Business, Energy & Industrial Strategy is currently calling for evidence on how to create a responsible payments culture in the UK, with submissions accepted until November 29.
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Firms risk bankruptcy
Ipswich MP Sandy Martin said government should act quickly. “Most small businesses do not have huge reserves of cash to keep them going for months without being paid.
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“A small supplier may be delivering an order which represents a significant part of their year’s trade to a larger company. Under these circumstances it is all too easy for small and medium-sized businesses to get into serious financial difficulties, and sometimes even to face bankruptcy, simply because they have not been paid the money they are owed in a timely way,” he said.
There was ‘no excuse’ for not paying within a month, he said. “Many larger companies penalise their customers for not doing so, so it is particularly unfair if those same large companies withhold prompt payment to their suppliers simply in order to make their own cash-flow look more healthy,” he said.
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A Suffolk businesswoman, who didn’t want to be named, said: “There are some major players in this county who are doing this to small companies like us. That’s the difficulty. And it’s only when the small companies have a chance to get together to talk about what’s going on in their businesses to support each other that we realise many of us are affected.”
Hayley Howard, an AAT licensed member of H&B Accountancy Services, Ipswich, said late payments could be a “big problem” for her clients across Suffolk and Essex, with those affected including kitchen manufacturers, builders and branding companies.
“It is mainly clients that invoice large amounts or clients that do the work up front so have paid for materials etc themselves and then invoice after the job has been completed,” she said.
The cost of recovering debt
David Burch of Essex Chambers welcomed the AAT proposals, pointing out that recovering debt could end up costing too much.
“We also increasingly see the accounts departments of larger organisations being located away from the department that placed the order or invoices having to be signed off by head office, all of which adds further delays to payment being made,” he said. But clear and enforceable sanctions were needed, he said.
Suffolk Chamber said positive cashflow was “absolutely central” to smaller firms’ survival, and urged them to take part in the BEIS consultation.
What government is doing now
Waveney MP Peter Aldous said late payment was a blight on small firms, but government had already taken action with its promotion of 30-day terms as standard in the Prompt Payment Code with a 60-day maximum limit. New reporting requirements on payment practices had also been introduced for large firms, and Small Business Commissioners introduced.
“The new Industrial Strategy will build upon these steps and aim to foster an environment in which small businesses can thrive,” he said, adding that he supported the AAT recommendations,” he said.
“I am particularly pleased to see the recommendation of a financial penalty regime, which would increase the degree of accountability of larger businesses and root out persistent offenders.”