Partner Article

Big businesses forced to pay SMEs on time

Small companies in Britain have been promised payment from FTSE 350 firms after a government drive to sign up to the Prompt Payment Code (PPC).

Big businesses have been criticised for not paying SMEs on time, which can lead to issues for these including poor cash flow, a backlog of payment in the supply chain and even insolvency.

The Government launched a campaign to force large companies to either commit to a code of conduct or be named in public, prompting companies such as such as Shell, Kingfisher and Diageo to sign up.

94 additional FTSE 350 firms signed up to the PPC while 24 smaller, non-FTSE businesses, also pledged to pay for products, deals and services on time.

The Department for Business, Innovation and Skill (BIS) estimates that over half of all UK company transactions are carried out without pre-agreed payment terms.

PPC will combat this commonplace trend by ensuring all business parties decide a payment timeframe before any official agreement is made.

Business Minister Michael Fallon said: “Late payment is a real issue for businesses across the country. […] We need to improve the payment culture and I welcome the response of big businesses in signing up to the common sense principles in the Prompt Payment Code.

“Signing up demonstrates a serious pledge to pay promptly. Reports of any companies found to be falsely committed to the value of fairness in the Code will be taken very seriously.

“But the work will not stop here. I will keep up pressure on firms to sign up and continue to ensure government leads by example in paying its suppliers on time.

“Central government has a good record. Now, I will be challenging other parts of the public sector to show their commitment to the principles of the Code.”

The Code’s values will be reinforced by the introduction of the European Union Late Payment Directive, based on current UK legislation that aims to safeguard SMEs from late payment.

This directive include rules that B2B payments cannot exceed 60 days unless pre-agreed, and public sector payments cannot run over 30 days on receipt of invoice.

John Walker, national chairman of the Federation of Small Businesses, commented: “FSB research shows that around three quarters of members have experienced late payment with almost one in 10 (11%) waiting for more than £35,000.

“Big business has financial buffers that a smaller firm doesn’t have and so they must be encouraged to pay on time.

“We would also encourage government to look at its procurement contracts and its Tier 1 suppliers to ensure that they are passing the favourable payment terms they are receiving on through the entire supply chain.”

Michael Fallon, MP, pledged to continue work with companies and the Institute of Commercial Management to raise awareness around PPC and the issues of late payment.

The Forum of Private Business chief executive, Phil Orford, said: “Companies that have chosen to sign up must understand that it is not just a token gesture, but a sizeable responsibility against which their payment practices can and will be judged.

“At a time when businesses welcome any measures that improve their cash-flow, the Prompt Payment Code remains a valuable signal that companies will stick to their terms and conditions.

“We therefore welcome this substantial increase in those FTSE 350 companies that have signed the code, urge more to follow suit and ask that all consider their supply chains before extending payment times in the future.”

This was posted in Bdaily's Members' News section by Miranda Dobson .