Government to crack down on late payment culture

06 March, 2015

Anyone who has spent any amount of time in a customer supplier relationship has encountered it – late payment of bills. We’ve all heard the phrase; “The cheques in the post – haven’t you received it yet?” Another favourite trick is to query the most trivial of details and to use it as an excuse not to pay what is often a very substantial invoice. Let’s be clear from the out-set; late payment of bills is not a clever strategic initiative to improve cash-flow – it’s a crude, un-ethical breach of contract. It can have devastating effects upon totally innocent parties and reverberate all the way down the supply chain. It doesn’t matter how those that do it want to ‘dress it up’ – it’s just plain wrong.

Late payment is not a new issue but the problem has worsened since the financial crisis of 2009 and particularly affects small and medium sized firms. Between 2008 and 2012, the overall level of late payments due to these businesses almost doubled from £18.6 billion to £35.3 billion. As of February 2013, the overall level of late payment owed to small and medium sized businesses stood at £30.1 billion – an improvement on 2012, but well above pre-2008 levels. The average amount owed to a small business stood at £31,000 and 85 per cent said they had received a late payment.

It doesn’t require a PhD in Economics to appreciate the negative effect that this kind of culture has on UK GDP and in particular, those companies that tend to be SME’s in the ‘middle’ of the supply chain – exactly where most BFPA members operate. That is why the BFPA, along with sister associations in the Engineering & Machinery Alliance (EAMA), have been working with other stakeholders such as the British Bankers Association and Government departments to try and address the problem. 2014 saw us engage in government consultations on the subject, the associated research from which showed that:-

• Small businesses on average spend 130 hours each year chasing late payments, which equates to just over three weeks of work, at an average cost of £1500 per business.

• 34 per cent of companies report that they have sought external finance to cover gaps in cash flow caused by late payment. The Federation of Small Businesses states that this has led to £180 million in debt interest charges – money that could otherwise be used for investment and growth.

• In 2011 124,100 businesses were almost put out of business due to their customers paying late. In 2008, 4000 UK businesses became insolvent as a direct consequence of late payment.