By Marcus Leach

A group of leading organisations have joined together to urge the Government to tackle the growing problem of late payment in order to help small firms survive, grow and drive economic recovery.

The industry bodies, including those representing UK-based suppliers, have written to the Business Minister, Mark Prisk, to call for a plan of action to address late payment, which decimates small firms’ cash flow.

The group, which is supporting the Government’s new ‘Finance Fitness’ campaign, believes any plan to encourage better payment practices should include the following measures:

- Clarify that the EU Late Payment Directive making 30-day payment terms mandatory, in the absence of any specified/agreed payment terms, is being brought forward to 2012 as originally stated and ensure any new legislation prevents suppliers being coerced into agreeing to vary payment terms against their will.

- Given that small businesses suffer serious cash flow problems as a result of late payment from large customers and public sector bodies, impacting their ability to pay their own suppliers, ensure that the Directive is implemented in a flexible way to account for this ‘domino effect’.

- Clamp down on large companies taking ‘prompt payment discounts’ and imposing retrospective changes to payment terms and conditions that are not contractually agreed.

- Pledge to continue with the UK’s public sector 10-day and 5-day payment initiatives, and ensure they are embraced by more local public sector bodies across the country and that prompt public sector payment is passed on down the supply chain. Indeed, to give added surety to those in the supply chain, the requirement in central Government contracts for contractors to pay their sub-contractors within 30 days should be extended right across the public sector.

- As part of this, introduce a national league of local authority payers including incentives to encourage councils to perform.

- Strengthen the Prompt Payment Code, including requesting businesses to sign up to the Code — exploring ways of making it an ‘opt out’ rather than an ‘opt in’ arrangement — and calling for examples of where it has been breached.

- Require FTSE companies to report more detailed information on their payment times.

- Use the public procurement process to promote best practice, assessing evidence of prompt payment via Pre-Qualifying Questionnaires (PQQs) and avoiding using businesses with over 250 employees if they are notoriously bad payers.

- Under the principle of more open data, work towards a culture of more transparency and standardisation of financial information for firms and financial organisations, including credit rating agencies, in order to help small businesses better establish their creditworthiness and properly assess the payment credentials of companies with which they consider trading.

- Allow the Groceries Code Adjudicator to impose financial penalties on retailers who are found guilty of treating their suppliers unfairly.

- Consider ways of encouraging and supporting more suppliers to pursue interest on late payments under the Late Payment of Commercial Debts (Interest) Act 1998.

A full list of the organisations backing the late payment campaign, and which have signed the letter to the Government, is:

Graydon UK Ltd; Lloyds TSB Bank Plc; the Asian Business Federation, the Brewing, Food and Beverage Industry Suppliers Association; the British Home Enhancement Trade Association; the British Printing Industries Federation; the Business Woman’s Network; the Federation of Master Builders; the Federation of Petroleum Suppliers and the Forum of Private Business.

Backers also include the Institute of Chartered Accountants in England and Wales; the Institute of Credit Management; PCG — the Voice of Freelancing; the National Association of Commercial Finance Brokers; the National Farmers’ Union; the National Pig Association and the Tenant Farmers Association.

New data from Graydon UK, a credit reference agency, shows that 76% of respondents believe the Government is not doing enough to protect UK businesses from late payment.

This is despite 51% reporting that the problem has become worse during the past year, 45% that it could threaten their ability to invest in their businesses and 20% that it could prevent them from continuing trading.

In addition, recent research from the payment body Bacs shows that late payment to small businesses, mainly originating from large companies at the head of supply chains across a broad range of sectors, has hit an all-time high.

The company’s figures show small and medium-sized enterprises (SMEs) are now owed a total of £33.6 billion in outstanding invoice payments — a rise of 10% in the last 12 months and the highest figure since records began in September 2007.

This is backed by recent research from the information company Experian, which found that late payment among UK firms of all sizes increased by almost a day on average during July, August and September 2011, compared to the April to June period.

Yet the same figures show the UK’s smallest businesses — those with one or two employees — managed to limit their late payment of bills to just half a day, representing the lowest rise during the period.

Further, with the use of credit checks more than doubling since last year in response to increasing late payment, a survey from Experian and the Institute of Credit Management (ICM) has found that small firms are more than twice as likely to suffer as a result of significant variations in credit scores.

“There is mounting pressure on the Government to crack down on the growing corporate late payment culture, which is already a huge problem for small businesses and is in danger of becoming endemic,” said Phil Orford, Chief Executive of the Forum of Private Business.

“Late payment and enforced retrospective changes to payment terms and conditions force firms out of business, plain and simple. It is time to tackle the problem once and for all so that prompt payment becomes the norm, unless there are good, justifiable reasons otherwise.

“In addition to the actions we want ministers to take, we recognise there are proactive steps available to business owners, including implementing proper credit management and credit checking procedures, but there is clearly a culture of fear when it comes to naming and shaming large late payers.

“We are also urging anyone subjected to this kind of treatment to tell us about it — we’re not afraid to take these companies on.”

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