MPs turn attention to late payers

If you thought Parliament was preoccupied by the Brexit talks, then think again. MPs have some how found time to raise the issue of late payment.

MPs call for 30 day supplier pay rule

MPs have said large firms should be legally forced to pay their small suppliers within 30 days.

A report from the Business, Energy and Industrial Strategy Committee calls for firms to sign the Prompt Payment Code and give the Small Business Commissioner the power to fine companies that pay late.

Committee chair Rachel Reeves said: “Unless the Government levels the playing field and acts to bring in a tougher regime for poor payment practices then we choke off the opportunity for SMEs to invest and grow in the future.”

Rachel Reeves said that businesses were caught in a stranglehold by larger companies paying late on purpose.

MPs have demanded that Large and medium-sized companies should be forced to settle bills within 30 days or face fines. They are calling for new rules to end a late payment culture that they say is damaging productivity.

The business, energy and industrial strategy committee said that the government should “introduce a statutory requirement for companies to pay within 30 days”, for the private sector and those in public sector supply chains.

If it became law then it would certainly be a huge step and likely to face opposition or the call for numerous exemptions. However MPs say that such a dramatic move is necessary as “bad payment practices have led to the failure of many SMEs and have prevented others from growing”. They said that attempts to tackle the problem, including the prompt payment code, a voluntary commitment to settle bills on time, have been “ineffective”.

Rachel Reeves, chairwoman of the committee, said that small businesses were caught in a “stranglehold by larger companies deliberately paying late and ruthlessly taking advantage of suppliers, causing these firms financial instability . . . Unless the government acts to bring in a tougher regime for poor payment practices, then we choke off the opportunity for SMEs to invest and grow.”

MPs said that their 30-day rule must not be undermined by big customers offering faster payment, but only in return for a further reductions in price, thus further strangling the margin of their  suppliers.

In their report on productivity published today, MPs also say that the small business commissioner should have the power to issue fines over late payment. Other proposals include ring-fenced “project bank accounts” on construction projects to stop big contractors wrongfully withholding their suppliers’ cash.

How to really break the late payment culture

James Salmon, Operations Director at The Credit Protection Association said  “Anything that can be done to tackle the late payment culture is a positive”

“However, while business customers are still able to threaten to remove future trade from their suppliers, they are able to get away with late payment without consequences as their supplier just sees late payment as an unavoidable cost of doing business and keeping the customer”

Whether the maximum terms are 30 or 60 days means little if customers ignore them with impunity.

He added “late payment legislation provides the tools to truly change the culture. Late payment legislation allows suppliers to go back six years (due to the statute of limitations) and charge compensation and interest on late payments that happened in the past”

“How will this change the culture?”

“Business customers may rely on their trading relationship with a supplier to get away with late payment, but as soon as that relationship ends, they face the prospect of being hit with 6 years worth of late payment compensation. Once that relationship ends, the supplier is fully entitled to go and ask for that retrospective compensation.

“Therefore, why risk late payment? Why operate with the risky of a large penalty looming over them?  It would be better for them to pay on time and avoid that risk”

“They may not even end the relationship themselves, the supplier might get into difficulties and realise they have this large untapped asset in late payment compensation that is available to them. Or the supplier might just look at all the late payments over the years, the hassle of chasing and decide that the business customer is worth more to them as an ex-customer than they are as a current customer”

“At present, not many suppliers are insisting on this compensation  and therefore it is not at the forefront of businesses minds. The more suppliers pursue late payment compensation, the more it becomes main stream, the more businesses will realise that the culture of late payment is not the magical free cash flow machine they thought it was and that it does come with a potential future cost.”

“Once they discover that every invoice they paid late, no matter how small, could lead to a compensation claim of at least £40, even if it was only late by a few days, then they are going to want to change their operating procedures to avoid future claims.”

With larger late paid invoices being worth £70 or £100 in compensation and with interest calculated daily at 8 percent above base then the costs of routinely paying suppliers late could be massive.

“They should quickly realise that it is better to pay their suppliers on time and instead finance their business’ cashflow through more traditional means.”

This doesn’t just mean deciding to write a cheque or instruct the accounts dept to raise a payment on the day it becomes due. If the payment arrives late, the penalty will still apply. No, to avoid the claim, those business customers need to make sure the payment arrives on or before the due date.  If  it arrives one day late then the full compensation is still due under the legislation.

“If payments start coming in on time, then those suppliers in turn will them have the cash to pay their suppliers and so on and so on….  The chain of late payment can be broken. The late payment culture can be stopped. We have the tools.”

“This isn’t an attack on business. Getting cash to flow faster through the economy can only boost our nations productivity.”

“Imagine a world where businesses and business owners spent more time working on productive projects and less on chasing payments!”

“Imagine a world where business owners could turn round jobs faster!”

“Imagine a world where business owners spent more time planning growth and new products and services and spent less time stressed over cash-flow”

“Breaking the late payment culture can liberate our nations small businesses and small business owners!”

How can CPA help?

If you sell on credit and have faced late paying business customers then we can help.

At the Credit Protection Association, our members benefit from our debt recovery and credit management services which give them the tools to avoid and battle late payments. Opening up the financial freedom needed to grow and prosper.

Our new Late Payment Compensation company, CPA (LPC) Recoveries Limited however can help suppliers unlock hidden potential and recover  the compensation due to their businesses.

Integrating the historic ledgers and calculating the claims is a complicated process but CPA has developed the systems to do it. We also have the experience and expertise to collect the compensation and overcome the various objections.

We are passionate about wanting to end the culture of late payment and want to work with suppliers who feel the same.

visit our late compensation page

See our full blog and FAQ on late payment compensation

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The Credit Protection Association is a credit management company established in 1914. If you supply goods or services on credit then we can help you!

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