Have you suffered from late payments by customers? If so, you’re not alone — research by the Federation of Small Businesses (FSB) suggests this is an alarmingly common problem faced by SMEs, especially when they do business with large organisations.
Needless to say, this can be extremely annoying and inconvenient, but sometimes it’s a lot worse. If late payments are large and persistent enough, they can prevent your planned economic growth, or even threaten your company’s viability.
The Problems of Late Payment
Mike Cherry, FSB’s National Chairman, has described late payments as “a scourge which leads to the closure of 50,000 small businesses a year.” FSB data shows that 30% of payments to small businesses are late, with 38% of the businesses suffering from serious cash-flow problems as a result of this.
This is unacceptable, according to Cherry as “When small firms are paid late, it causes financial hardship and stifles growth…No one should have to wait months on end to receive the money they’re owed.”
In fact, the FSB suggest that addressing this problem could keep 50,000 more businesses running and unlock £2.5 billion for them.
Things Are Improving
The FSB has lobbied the government hard on this issue for many years, and things have finally got moving. Since April, larger businesses (defined as fulfilling at least two criteria out of a £36 million turnover, an £18 million balance sheet and 250 employees) will be subject to Duty to Report, an obligation to report their payment practices every six months.
In addition, large companies are being invited to sign up for the Prompt Payment Code. This is a voluntary agreement, under which they pledge to stick to a range of standards on treating suppliers fairly — including paying up on time.
So What Does This Mean?
Obviously, none of this is going to solve the problem overnight. The Prompt Payment Code is strictly voluntary, and it’s reasonable to anticipate that early adopters are likely to be companies which are already conscientious.
In addition, much will depend on how much power the Small Business Commissioner has. This is currently restricted to naming and shaming companies with poor payment records. While this will help SMEs by flagging up customers to avoid, it won’t help those actually owed money.
The FSB has been lobbying to increase the Commissioner’s powers, but until these include punitive abilities, the measures against late payments can only be advisory. The best recourse is still to pursue debtors vigorously — and, as ever, you’re very welcome to get in touch with me if you need help with this.