Late payment adds to credit crunch woes

With the problem of late payment becoming more severe as a result of the economic downturn, the Forum of Private Business is urging the government to pay its own suppliers on time

The FPB has written to the Secretary of State for Communities and Local Government, Hazel Blears, to stress the impact of late payment on small firms, following research in August that revealed 95 per cent of respondents believe the government should set an example by paying its suppliers promptly.

The FPB’s Policy Representative, Matt Goodman, recently met with civil servants at the Department of Business, Enterprise and Regulatory Reform (BERR) to discuss the issue. He said that, for small businesses struggling in the current economic climate, receiving timely payments mean the difference between trading profitably or not at all.

“BERR has acknowledged the impact of late payment on small firms, and is working to ensure that the government takes the lead on the issue. We have also written to ask Ms Blears to see that it is being addressed at a local level,” he said. “Solutions that have been suggested include a public sector code of practice and increased awareness across individual government departments. It was agreed that the way forward must not lead to more regulation, which would simply add to another major problem for small firms. What is needed is a change in the culture of payment.”

Currently, firms have a statutory right to interest (SRI) under the Late Payment of Commercial Debts (Interest) Act 1998, allowing them to charge interest on the debt they are owed. However, the FPB is concerned that many fail to do so because they fear that these larger businesses will simply refuse to deal with them again.

The FPB – which maintains a ‘hall of shame’ for bigger companies that squeeze their suppliers by imposing unilateral contractual changes and ‘settlement discounts’ on invoices – is encouraging its members to report systematic late payers.

Subsequent surveys, including those carried out by the UK 200 Group and Bacs Payment Schemes have increased pressure on the government to tackle the problem in order to protect struggling small firms.

In the latter survey, 58 per cent of all respondents said that the economic downturn is adversely affecting them, with almost a third confirming that it is making the problem of late payment even worse. However, businesses the north of England and Scotland appear to be faring a little better, with 45 per cent saying they have experienced ‘no visible indicators’ of the economic slowdown.

Michael Chambers, managing director of Bacs, said: “The overall results do seem to mirror what’s being reported more widely. However, it’s good to see that companies in the north of England and Scotland report that they seem to be weathering the initial storm better.”

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