08 April 2015
Small firms have little confidence in the Prompt Payment Code, according a survey conducted by the Federation of Small Businesses (FSB).
The FSB found that only one in five (21%) FSB members are confident the Prompt Payment Code will be enough to address the UK's poor payment culture.
As part of the survey, FSB members reported that the top five reasons why their customers paid late were: no excuse or justification was given (49%); internal invoice processing issues caused a delay (35%); the customer extended the payment terms without your consent (34%); invoice was lost or misplaced (33%); and invoice was never received (31%).
Additionally, two fifths (39%) of businesses questioned were on average offered terms longer than 30 days for payment. On top of excessively long payment terms, 43% of firms said they have waited over 90 days beyond the agreed payment date before they got the money they are owed.
John Allan, National Chairman of the FSB said: ‘Late and poor payment practices are holding back our economy and pushing potentially successful firms out of business.
‘If businesses do not get the money they are owed, they may not be able to pay their staff, invest in their business or pay their own suppliers. There is a knock-on effect right down the supply chain, which undermines the UK economy as a whole.’
The FSB has also previously found that almost one in five small businesses had been subject to some form of supply chain bulling. The so called ‘pay to stay' practice used by Premier Foods, who asked suppliers to pay a flat fee in order to be considered for future contracts, was experienced by 5% of small firms.
In order to tackle this poor payment culture, the FSB believes a full and independent inquiry into poor payment practices is needed.
Allan commented that the UK's payment culture continues to get worse and the solution lies in ‘a cultural shift to improve payment practices … it has become clear that we need an independent inquiry which should report before the end of the year’.
Other companies which made the news for alleged similar late payment terms include Heinz, AB Inbev and Capita. Governance + Compliance spoke to two industry sources to get further insight into supplier payment terms and their view on what can be done to ensure these are fair for all parties involved.
The UK government strengthened the Prompt Payment Code as part of its changes to the Small Business, Enterprise and Employment Bill earlier this year. [link]