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Posted on 14/05/2013

Will the late payment inquiry make a difference?

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Next week a cross-party inquiry into late payment will take place. The meeting will examine how bad the problem has gotten for SMEs, as well as other issues around poor payment practices affecting small businesses. Will the inquiry have a positive impact?

The event will hear evidence from four panels. Each panel will be questioned on the impact of late payments on SMEs and the wider economy; the effectiveness of current payments systems and tools including the Prompt Payment Code; and their recommendations of the further steps needed to address late payments.

The Forum of Private Business (FPB) are one of the organisations taking part. Alex Jackman, the Forum’s Head of Policy, said, “Late and slow payment amounts to little more than supply chain abuse, that is big business bullying small firms to boost their own profits.

“We know from recent high profile examples of the situation, far from improving, is spiralling out of control. Hopefully the investigation can shine a light on the issue and expose the real and serious problems it cause for small business.”

Late payments can have a crippling affect on small businesses where keeping cash flow healthy is a struggle. Research from Graydon suggests that around one in five businesses will fail as a result of late payments. Recent research from Bacs suggests that the situation is worsening, on average small businesses are forced to wait eight weeks after bills are due to be paid. The national late payment debt is estimated to stand at a staggering £30.2 billion.

Safeguarding against late payments and the knock on effects it causes is vital for businesses of all sizes. Just one late payment can place a business in jeopardy. Thoroughly checking the credit report of a business before entering into an agreement ensures that appropriate credit limits are set and can reduce the risk of late payments.

Graydon’s Trade Payment Programme allows businesses to reduce days sales outstanding (DSO) by focussing their collection team’s effort on those companies highlighted at late payers. In addition clients can see how customers pay them versus other suppliers and identify sales opportunities within their existing customer base.

Whilst the inquiry may get the issues debated out in the open and new ways to combat the issue will be discussed, it will be some time before any positive affects of the event filter down to small businesses.

Mr Jackman said he would like the issue of big businesses who take 90 days and longer to pay yet have signed the Prompt Payment Code to be addressed. The FPB believes there is a strong case for the terms of the code to be tightened up.

The ‘alarming development’ of ‘invoice haircutting’ depending on payments times also needs to be discussed he added. Recently a large number of businesses have been criticised for asking suppliers to pay a fee for having their invoices settled quicker.

Commenting on the so-called ‘invoice haircutting’ development the FPB, said, “While we understand the pressures faced by the high street, it seems neither fair not right that they are asking suppliers to take a big hit in this way, especially without any meaningful discussion beforehand.

“While some suppliers may be in a position to agree the deal, others won’t, and then it’s a stark double choice between waiting longer for their cash, or getting it quicker but losing a sizable chunk. It really is a case of putting them between a rock and a hard place.”

Businesses need to take a proactive approach in reducing the risk of late payments, Graydon offers training and development courses aimed at maintaining a consistent cash flow, avoiding bad debt and minimising late payments.

By implementing a few additional steps into their credit control procedure businesses can ensure they are best protected and allow the business to expand and grow.