Despite industry efforts to eliminate the problem, including strengthening the Prompt Payment Code backed by 1,800 UK businesses, 3 per cent of UK small and medium-sized enterprises (SMEs) report having to wait four months (120 days) for payment in their contract terms, according to a study by Tungsten Network.
The Prompt Payment Code Advisory board was set up in 2014, with the remit of supporting and advising on the strengthening of the Prompt Payment Code that encourages businesses to pay their suppliers within 60 days, and move towards 30 days as a norm.
The code was strengthened this March and a compliance board was established to ensure that terms were being met. From 2016, this will become a formal requirement for all members.
The survey shows that 12 per cent of the UK’s 5.2 million SMEs still have to wait 90 days or more to get paid under their customer’s payment terms.
Tungsten CEO Rick Hurwitz says, ‘Too many SMEs struggle to span the working capital gap between completing a job and getting paid. After paying out their costs, they often have to wait too long for their customers to pay them.
‘From our daily experience of helping SMEs better manage their cash flow, we know these extended payment terms are seriously impacting their ability to invest in growing their businesses.’
Small business minister, Anna Soubry, recently announced plans under the Enterprise Bill to tackle payment problems faced by SMEs by appointing a new commissioner to deal with complaints.
Hurwitz adds, ‘The government can play a role in helping span the financial mismatch between small operators and their larger customers by seeking consensus to strengthen the Prompt Payment Code, gaining buy-in from companies of all sizes.’
Philip King, co-chair of the Prompt Payment Code Advisory Board and chief executive of the Chartered Institute of Credit Management says the Code has helped to elevate the late payment debate to the top of the Boardroom agenda, supporting all sizes of business that struggle with the challenge of getting paid on time and to agreed terms.
‘It has already proven its effectiveness, with 100 per cent of all challenges successfully securing quick payment for the supplier and/or, in many cases, resulting in changed processes to improve the way in which supplier payments are managed,’ he adds.
‘What is vital, however, is that the Code is given greater visibility, publicity and support to encourage more people to engage when things go wrong, and to highlight the examples of good practice that are already prevalent. The mechanism exists but it needs to be used more.’
Further reading on late payment
