Late payment: Government is urged by small firms to toughen the rules

Feb 26, 2014

Data from the Federation of Small Businesses shows that more than half of its members were paid later than the agreed payment date by large companies last year.

 

The figures have led to calls by the FSB for government to strengthen the Prompt Payment Code to make it easier for firms to complain about payment terms.

 

It also wants a culture change among large companies who repeatedly pay late and who have been extending their payment terms to as much as 120 days. 

 

FSB Bedfordshire branch chairman Ian Cording pictured said: "As the economy gets stronger, we must do everything we can to help businesses and late payment is an issue the government and large businesses must tackle.  

Fear of losing contracts is another issue, says the FSB. Even though they are legally entitled to do so, its research suggests just one in ten small firms had charged interest to clients for overdue payments because they fear losing business.

A survey of small firms in Bedfordshire has revealed that almost all respondents had suffered after a customer delayed payment. 60% said they had resorted to further action to recover the debt.

FSB member Ron Lewis, who runs a carpet cleaning business in Luton, said: "It is not just the effect on our cashflow that is a problem as we have less flexibility when it comes to delaying our outgoings, it also the time that is used to chase payment… time that would be much better spent working on my business.

 

"It is also difficult to make a judgement on how hard to chase payment and risk losing repeat business. It would be much better if there were more clarity."

 

The FSB has urged the government to consider relaunching the Prompt Payment Code website and to promote more widely the existing ‘challenge’ function,  where small firms can complain about a firm signed up to the code it feels is not a prompt payer.

 

To strengthen the PPC, the FSB wants to see all signatories clearly state what their maximum and average payment terms are, as well as a named contact for small businesses who face difficulties. As included in the EU Directive enacted in the spring of last year, only in exceptional circumstances should payment terms be more than 60 days.
 
Mr Cording said: “Small businesses simply cannot be expected to lend interest free to their large customers, which is in effect what extended payment terms and late payments results in.
 
“Government needs to get its policy on this right but as the biggest buyer in the UK it should also exemplify best practice.”
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