Small Business Commissioner seeks late payment clampdown.

21st January 2019.

Small Business Commissioner Paul Uppal is recommending new proposals which would identify large businesses with a history of making late payments to suppliers via a traffic light system.

The recommendations come following research undertaken by the Small Business Commissioner and Lloyds Bank, which found that nearly a third (32%) of invoices are paid late. On average, payment is made 38 days after issue – a week more than the recommended time frame of 30 days.

Small businesses are particularly impacted by late payment due to their inability to absorb large debts. David Baber, Managing Director of the Credit Protection Association (CPA), says: “The effects of late payment on small firms not only impedes business growth but can be devastating,” whilst Lloyds Bank’s Ed Thurman concurs: “two weeks can be critical in the financial well-being of small businesses.” Beyond its financial impact, Paul Uppal noted that late payment often “also has an impact on the lives and mental health of those running small firms.”

 

65% of companies take 30 days to pay

In April 2017, the government passed legislation to collect data on businesses’ payment practices, with twice-yearly payment reports now required. Data sampled from the reports of 7,010 companies indicate that 65% of large businesses take over 30 days to pay bills, with 22% taking over 50 days to do so. These delays vary by region, with London companies the swiftest payers at a 34 day average, and those in York and Humberside taking the longest at an average of 43 days. Overall, just 14% of companies reported making payments in 19 days or under.

The culture of late payments affects not only businesses – in particular SMEs – but also has an impact on the broader economy. Uppal notes that money “stuck on large firms’ business ledgers doing nothing” is consequently lost for the purposes of “grow[ing] smaller businesses and generat[ing] tangible economic activity.”

To address these concerns, Uppal urges that the government must “use the information [collected] to help small firms make sound decisions based on transparent information before deciding which larger businesses they should trade with.”

He adds: “A traffic light system would be a simple and effective way of demonstrating which larger firms have structured their supply chain in such a way that it is more than an exchange of good or services but also resembles part of their financing model.”

 

SMEs advised to take measures against late payment

The CPA’s David Baber urges small businesses to enlist professional help to guard against the potentially catastrophic effects of late payments, saying:

“The Late Payment Compensation division of CPA enforces Late Payment Legislation, claiming interest currently at 8.5% and additionally provides Members with three tiers of compensation – £40 for debts under £1,000, £70 for up to £10,000, and £100 for over £10,000, depending on the amount of each individual invoice.”

“Moreover, CPA will calculate exactly what each and every client is owed going back 6 years for every invoice that was paid late. This can amount to serious money indeed, sometimes hundreds of thousands of pounds for a client.”

 

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