By Daniel Hunter

The Forum of Private Business has this week submitted Freedom of Information Act requests to local councils in England asking how long they take to pay their suppliers.

In 2009, almost a year after the Government urged councils to follow the example of central departments and commit to paying their suppliers within 10 days, FOI research carried out by the Forum revealed a ‘postcode lottery’ for council supplier payments.

Overall, the average time local authorities took to pay invoices was almost double the 10-day target, at 19 days. The UK average for the payment of bills within 10 days was 42%, but stark regional variations meant that this figure was as high as 52% in some areas and as low as 11% in others.

“The real public sector late payment problem is where local authorities are concerned, where a great many contracts for small firms originate,” said the Forum’s Senior Policy Adviser, Phil McCabe.

“According to our previous freedom of information research there has been a real postcode lottery when it comes to suppliers being paid on time — it will be interesting to see if anything has improved or, given that we are again in recession and overall levels of late payment appear to be increasing, become worse.

“While the Government’s commitment to paying promptly centrally is welcome it is important we also look to councils to set the standard for private companies to follow.”

The Forum believes that, with public contracts worth some £70 billion, the public procurement process could be used to promote better payment practices, for example by including pre-qualification questionnaires (PQQs) on payment in the tendering process.

Public sector is a poor payer, say one in five firms

More recently, research carried out by the Forum and credit agency Graydon UK found that late payment is most widespread in the private sector, as reported by 81% of small businesses, almost one in five respondents (18%) identified public sector organisations as poor payers.

The survey of 500 small business owners looked at payment culture in the UK. In all, 51% of companies cited late payment as a problem, 23% said it is a serious problem and 16% that they have almost been put out of business as a result.

Underscoring the ‘domino effect’ of late payment down the supply chain, meanwhile, 56% of those respondents not paid on time have, in turn, been forced to pay their own suppliers late. Further, 45% reported that late payment has eroded their profits and 23% asserted that it has undermined their ability to invest in growth through innovation.

Further, 65% of respondents reported customers extending their payment terms without notice or consultation, 27% said suppliers had universally changed terms and conditions and 25% that customers had withheld final payments without consent in order to assess the quality of work first.

In all, 23% of business owners said customers withheld payment in order to question quality or delivery times while 14% reported customers demanding discounts for prompt payment not agreed at the outset and 12% supplier credit withdrawn without notice.

The figures show that businesses which embrace credit control procedures of some form are significantly less likely to suffer as a result of late payment. Many small firms acknowledge that there are proactive steps they can take to minimise the problem.

Submitting invoices promptly is seen by 97% as the most effective method of minimising late payment, followed by telephone contact with a customer after an invoice has been submitted (79%), using credit checks (76%) and refusing to complete work in the future (61%).

However, less than half of respondents (44%) employ formal credit control procedures, with 38% instead relying on a mix of formal and informal processes and 16% juggling payments on an ad-hoc basis.

Just a third of companies (33%) offer prompt payment incentives, while only 30% use existing legislation to charge interest on late payers and 40% use cash flow management software. In addition, debt collection agencies are employed by 42% of respondents, 43% keep a reserve in the bank to offset late payments and invoice discounting is seen as a solution by just 26% of businesses.

Call for Government action on late payment

The research informed a House of Commons round table event held in April and attended by representatives from the Government’s department of Business, Innovation and Skills (BIS), the Labour Party, the Institute of Credit Management (ICM), the Association of Certified, Chartered Accountants (ACCA) and Lloyds TSB Business.

Following its successful lobbying for the Late Payment of Commercial Debts (Interest) Act in 1998, which allows firms to charge interest on outstanding invoices, the Forum has been at the forefront of efforts to tackle late payment.

The not-for-profit business support organisation has recently led a call to action, writing to the Business Minister, Mark Prisk, supported from many leading UK trade bodies and finance industry professionals. The call led to the re-formation of the Government’s late payment working group and several initiatives have been proposed.

In the Forum’s 2009 local authority payment FOI research, some trailblazing authorities settled more than 90% of their bills in ten days or less. Others proactively signed up to the Government’s Prompt Payment Code and made concerted efforts to speed up payments to aid local companies.

However, others appeared oblivious to the 10-day target. Some admitted that none of their suppliers received payment within 10 days, while more than a dozen paid less than a tenth of their bills within the timeframe.

Many councils even struggled to pay invoices within 30 days, managing to settle just half of their bills within a month. In 2013 the updated EU Late Payment Directive comes into force, standardising 30-day payments unless in exceptional circumstances.

Highlights of the Forum’s 2009 late payment FOI research:

– The average length of time for a UK council to settle an invoice was 19.4 days, ranging from 18 days in England to 37.2 in Northern Ireland.

– 52% of bills were settled within 10 days in West Midlands but just 11% were paid within the timeframe in Northern Ireland.

– The council which paid the most of its bills within 10 days was South Northamptonshire Council, on 91%. The authority also managed to settle invoices in an average of less than six days.

– The two councils which said 0% of payments were made within 10 days were Argyll and Bute in Scotland and Down District Council in Northern Ireland. Wakefield District Council in Yorkshire managed to pay just 1% of invoices within 10 days.

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