Why late payments need to be tackled now for the benefit of SMEs
Late payments are responsible for almost a quarter (23%) of insolvencies, and prevent many businesses from investing in or growing their own businesses. It’s for these reasons that action needs to be taken to tackle late payments and help SMEs.
The Department for Business, Energy and Industrial Strategy (BEIS) announced a call for evidence on the subject this month. AAT (Association of Accounting Technicians) responded by making three key recommendations to tackle late payments:
• the Prompt Payment Code should be made compulsory for companies with more than 250 staff
• payment terms should be halved from a maximum of 60 days to a maximum of 30 days
• a clear, simple financial penalty regime for persistent late payers should be introduced and enforced by the Small Business Commissioner.
There’s already been strong backing from a number of SMEs.
Leanne McConnell of Virtually Perfect, who offer accountancy services in Eastbourne said:
“My business partner and I have sometimes had difficulties getting money owed which probably wouldn’t have happened if there was a legal requirement to pay within 30 days and the realistic threat of a meaningful fine if it wasn’t paid.”
Caroline Danks, who runs Caroline Danks Fundraising, a Cornwall-based consultancy for charities, said:
“There is absolutely no justification for payment terms of 60 days or longer. Given payment can be made almost instantaneously. That said, I do recognise that some larger companies may also have cash flow issues and that taking a bit longer may be necessary. Recognising this, it seems more than reasonable to suggest an absolute maximum of 30 days but certainly nothing more. My own payment terms are 14 days and although most suppliers pay on time we do have late payments from time-to-time which can be a real headache as its my only income.”
Kate Bell of Zip Us In, a Salisbury-based company providing panels for jackets during pregnancy and baby-wearing, said:
“As a start-up company, late payment caused me several difficulties but even now, as a firmly established and successful company, late payment can have a big impact on me and my company. Imposing obligations is great if companies meet these obligations but there needs to be strong enforcement action against those that don’t – an initial warning followed by a fine for non-compliance would seem like a sensible option.”
Phil Hall, AAT Head of Public Affairs & Policy, said:
“Over the past decade or so there has been a stream of tweaks, voluntarism and reliance on big employers to do the right thing, all of which have failed to address the problem of late payments.
“The response to our recommendations appears to suggest a broad coalition of support for reform that the Government will find increasingly difficult to ignore.”