Do govt changes to late payments go far enough?

Monday 2 June 2014

The government has introduced a series of measures designed to reduce instances of late payments to small and medium-sized businesses (SMEs).

Following a consultation, larger firms will now have to publish their payment practices and legal barriers will be removed to prevent firms from accessing invoice financing.

What's more, the government will begin working with the Institute of Credit Management (ICM) to strengthen the Prompt Payment Code and increase the accountability of signatories.

Improving transparency of payments and cracking down on the practice is important for limited companies and sole traders, whose cash flow is put at risk by past-due receivables.

The changes are hoped to protect SMEs from late payers and the government has assured businesses that where legislation is needed to make the new rules a reality, it will be implemented.

However, not everyone is convinced by the measures and the PCG claims they don't go far enough.

Simon McVicker, director of policy and public affairs at PCG, said: "Talk of changing the ‘culture of payment’ among larger firms will only go so far in addressing the problem. In order for it to be effective, the Prompt Payment Code must be compulsory for large companies and it must include sanctions for the worst offenders.

"We also need a system for small businesses to report offenders anonymously, so they are not compelled to jeopardise important client relationships by sticking their heads above the parapet. The reality is that the only way to ensure big companies pay up on time is to take direct legislative action."

Nevertheless, the PCG has welcomed the changes, calling them a "clear step forward". Indeed, it is crucial that SMEs are given greater protection against larger firms that fail to pay on time.

Business secretary Vince Cable explained that big companies have been able to get away with not paying suppliers for too long. While this allows them to maximise their profits, it has serious ramifications for the likes of sole traders and limited companies.

According to Mr Cable, the government had already taken steps to create a more responsible payments culture but it has to go further.

It is believed the new changes are the answer, by ensuring it is compulsory for larger companies to publish information about payment practices so those that don't play by the rules can be held to account.

According to the 'Chasing Payments' report from WorldPay, businesses are owed around £2.5 billion each year by late payers.

It is believed that around 75 per cent of tradespeople and micro businesses in the UK have experienced late payments in the last 12 months, with builders and plumbers the most likely to be affected.

WorldPay claim that on average tradesmen have to wait up to 15 weeks to get paid. Among those small businesses that have been the victims of past-due receivables, 45 per cent experienced cash flow problems as a result.

What's more, client relationships are also threatened and resources wasted, as staff spend time chasing payments that could better be allocated elsewhere.

By Victoria McDonnell

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