Late payments in the UK
Late payments are the bane of any business. In Britain this is coming to the fore because Business and Enterprise Minister, Michael Fallon, has launched a campaign calling for large companies to improve the practice of tardy payments to small suppliers. This has also been picked up by the Telegraph who are running a campaign in conjunction with the Minister to encourage on-time payments.
Late payments to SMEs threaten their existence as cash-flow is an imperative to their survival. Small firms find themselves at the mercy of large companies who are increasing the time-frame in which they pay suppliers for work that is already completed. It is estimated by the Telegraph that £36.5 billion is due in late payments.
Latest research from the organisation reveals that smaller suppliers wait on average 41 days longer for payment than their contract stipulates. Many have to wait up to 180 days to be paid for services they provide to larger companies and the minister revealed that he had been told of one well-known company that had a payment process approaching 200 days. (Telegraph)
This is indicative of a culture whereby large businesses are dictating to small suppliers the timeframe of payment and taking advantage of them because they know how reliant they are on the business. The small firms cannot question the delayed payment for fear of losing the business. For these companies taking action is difficult as it means incurring large legal fees as there is no small claims court set up to deal with the issue.
British Minister Fallon is keen to get companies to comply with the Prompt Payment Code which promotes the payment of suppliers within one month of receiving an invoice. For those that do not join the initiative the Telegraph will run a ‘name and shame’ campaign in order to put pressure on companies to comply.
New Directive on Irish late payments
The issue of late payments to suppliers is not restricted to the UK. Irish suppliers have the same problems,
According to The Small Firms Association’s survey Irish SMEs have to wait 62 days on average to get paid. Patrick Callan, SFA director, said that late payments are compounding an already difficult environment for many small firms. (RTE.ie)
Cash-flow problems, as a result of late payments, are strangling small businesses. The Irish Exporters Association talks on its’ website about a new directive on ‘Combating late payments in commercial transactions’. This is to come into force in March 2013. The directive is being adopted in an effort to develop a business environment that is supportive of timely payments in commercial transactions and to improve the liquidity of small and medium enterprises in the EU. Provisions of the directive state that where there is no specified timeline for payment the debtor must pay within 30 days of receiving an invoice. Action is to be taken if payment exceeds this period. The action will be in the form of interest charged at a rate of 8% on top of the standard ECB rates for the length of time that the payment is overdue. The debtor will also be liable to any reasonable legal fees spent in chasing down the payment and interest. But suppliers are unwilling to enforce these interest payments and the majority do not for fear of getting a bad name as a supplier.
This directive is good in theory but in practice its enforcement will prove difficult. The Irish government is keen to make suppliers aware of the measures they have at their disposal to penalise firms but suppliers will remain cautious in enforcing them as they don’t want to risk losing business,
The majority of small firms are unwilling to penalise people who are late paying them for fear of losing business in the current economic climate. (Irish Examiner)
e-Billing as part of the solution
e-Billing, as a solution, can make the payment process more transparent for the supplier and ensure that they can query any non-payments immediately and report any companies that continuously miss payments. However, until the legislation on late payments is put through and properly enforced by the government large companies will continue to abuse supplier relations in this way.
For more information on the amendments to the EU directive due in March go to this link: http://www.irishexporters.ie/section/TheNewDirectiveonLatePaymentsinCommercialTransactions
- Telegraph http://www.telegraph.co.uk/finance/businessclub/9782988/Government-going-to-war-over-37bn-late-payments-to-small-companies.html
- Irish Examiner http://www.irishexaminer.com/business/poll-majority-of-small-firms-afraid-to-penalise-over-late-payments-218765.html
- Independent http://www.independent.ie/business/suppliers-get-help-to-tackle-late-payers-3347947.html
- Irish Exporters http://www.irishexporters.ie/section/TheNewDirectiveonLatePaymentsinCommercialTransactions
- The Journal http://www.thejournal.ie/late-payments-small-businesses-743086-Jan2013/
- Breaking News http://www.breakingnews.ie/business/sfa-small-firms-struggling-with-late-payments-580233.html
- Parfrey Murphy Chartered Accountants http://parfreymurphy.ie/free-resources/articles-of-information/miscellaneous/late-payments-directive/