Traffic lights proposed for late payers.

James Salmon, Operations Director, 7th January 2019.

Traffic lights proposed for late payers

The Small business commissioner Paul Uppal will this week unveil plans that will see large firms that fail to pay their suppliers on time named and shamed.

He is suggesting a traffic light warning system that will use data on payment practices to highlight repeated late payers, giving them a red light to flag the issue to suppliers, with red lights also set to be handed to firms failing to report their payment terms.

 

Lloyds Banking Group analysis of companies that reported their payment practices shows that 65% take more than 30 days to settle invoices, while 21% take more than 50 days.

The Federation of Small Businesses estimates that large firms failing to settle their bills leads to the collapse of around 50,000 businesses a year.

The study by Lloyds Bank Commercial Banking, in partnership with the commissioner, found that in Scotland nearly one-third (31%) of payments owed to small firms by larger business customers are paid after 30 days.

Invoices are taking an average of 37 days to be paid to smaller firms north of the border, the research revealed. Although this is the same as the UK average, it is still well above the commissioner’s recommended 30 days.

The traffic light system proposed would help small firms to identify which large businesses habitually pay their bills late.

Legislation introduced in April 2017 required all large businesses in the UK to publish their payment practices.

Mr Uppal said: “Some businesses have now made two reports.

“The challenge now is to use the information to help small firms make sound decisions based on transparent information before deciding which larger businesses they should trade with.

“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.”

He added: “Almost two thirds of payments are likely to be owed to smaller firms at any time. This is money that could be used to grow smaller businesses and generate tangible economic activity, instead it is stuck on large firms’ business ledgers doing nothing.”

Meanwhile, a cross-party survey of MPs commissioned by the Association of Accounting Technicians (AAT) shows that almost three quarters support plans to fine companies that repeatedly fail to pay their suppliers within 30 days.

The proposals also include a call to make the voluntary Prompt Payment Code a legal requirement for large firms.

Of the 100 MPs polled, none opposed the plan, while 27% said they didn’t know or neither agreed or disagreed with the proposals which were last month endorsed by the business select committee.

The AAT’s Phil Hall said: “Government action to tackle this problem, from the voluntary payment code to compulsory but feeble reporting requirements – as well as the creation of a small business commissioner with no real power – have all predictably failed to stem the scourge of late payments.”

CPA’s view

IN CPA’s view, any system that relies upon suppliers reporting late-payers will fail through lack of support from suppliers who will not want to upset current customers.

Also any system that relies upon payment records being supplied by big businesses to Government so that the Government can then fine them is wishful thinking in the extreme.

The huge stream of invoice and payment data required (that’s a whole extra IT division for the Civil Service) will receive proof that when, “suppliers correct invoice errors, answer delivery queries, send the invoice to the correct address, etc., etc.” payments were mostly made on time!

IN CPA’s view, the only solution to solving late payment is to make suppliers believe that paying late is not in their interest. This can be achieved through retrospective action

Read our blog here on how this can be achieved.

CPA’s late payment compensation department can help you fight the late payment culture. Contact us to find out how.

How CPA can help

Members of CPA will know that our credit reports already provide a traffic light system to evaluate companies. Although we cover millions of businesses not just the small number of large companies covered by the legislation. We also report on payment days within our reports, so you can see good companies are at paying their suppliers.

And if you are suffering from late payments, rather than wait for politicians to do something, why not ask some professionals to actually collect it?

Trading for over 100 years,  CPA have collected billions  for our members.

At the Credit Protection Association,we provide a suite of credit management services to help you avoid and deal with late payers.

We provide first class credit information that can help you avoid being over extended to customers who are at risk.

We regularly publish lists of the latest insolvencies but by then it is too late.  Our credit reports predict approximately 96% of insolvencies long before they arrive.

Our debt recovery services also chase down late payers, resolving over 80% of debts referred, recovering  money that our members can use to boost their cashflow.

Our members have used this extra cash to invest in additional materials, new staff, extra equipment or new technology,  to boost their business.

At the same time, our credit checks and credit reports are utilised by our members to investigate all suppliers and customers. It is important to scrutinise everyone within your business, to ensure their financial history will show no bad payment behaviour or maltreatment of suppliers. Our reports help avoid bad payers or being over extended to a customer beyond their means.

We come across business owners who have decided to scale back their businesses and stop selling on credit because the hassles were not worth it.

Our services have helped them trade again in confidence

Our debt recovery and credit management services give our members the financial freedom needed to grow and prosper, while our new Late Payment Compensation department could unlock hidden potential and offer the compensation needed to springboard your business to success.

James Salmon, Operations Director, 7th January 2019

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