Dive Brief:
- In an analysis of payment practices by more than 7,000 U.K. companies, Lloyds Bank Commercial Banking and the country’s Small Business Commissioner found that 65% take more than 30 days to pay suppliers. In addition, 21% take 50 days, and 2% exceed 80 days, Supply Management reported.
- Large companies that take longer than 30 days to pay are, in effect, using their supply chain to finance their business, said Paul Uppal, the Small Business Commissioner.
- In a separate poll commissioned by the Association of Accounting Technicians (AAT), 73% of the members of Parliament have come out in favor of mandated changes to payments. None said they were against the changes.
Dive Insight:
As if British business — and government— doesn’t have its hands full with the ongoing Brexit struggle, it turns out many of the larger firms are in hot water for failing to pay their suppliers promptly.
"Late payments lead to thousands of insolvencies every year, damage productivity, restrict investment and can also impact on the mental health of small business owners and their employees." AAT Head of Public Affairs & Public Policy Phil Hall said in a press release.
The problem isn’t new. In 2017, the Zurich SME Risk Index showed that more than half (52%) of Britain’s small-and-medium sized businesses are owed in total an estimated £44.6 billion ($57.1 billion) in late payments. SMEs are small and medium-sized enterprises and represent 99% of all businesses in the European Union, according to the European Commission.
This is despite a Prompt Payment Code (PPC) already in place and signed by a number of businesses. The PPC sets standards for payment practices and best practice and is administered by the Chartered institute of Credit Management on behalf of the Department for Business, Energy and Industrial Strategy (BEIS).
It requires signatories to pay on time according to contract, provide suppliers with clear and accessible guidance on payment procedures, have a system for dealing with disputes and encourage lead suppliers to adopt the code for their own supply chains.
The AAT, however, says that the PPC is not strong enough, suggesting three additions that it included in its poll of Parliamentarians. These are:
- Make the code compulsory for companies employing more than 250 employees.
- Reduce maximum payment terms from 60 to 30 days.
- Be supported by financial penalties for persistent late payers, enforced by the Small Business Commissioner.
The recommendations are backed by the recruitment and construction industries, SMEs and the Business, Energy & Industrial Strategy Committee, which backed the recommendations in a recent report of its own.
