Will you get paid faster next year?

With new figures showing small firms are waiting longer for payment, the Government has brought forward an EU directive for more prompt payment of invoices – but will it be enough?
The latest survey from Experian shows that average payment times for UK firms have increased by almost one day, to 26.13 days beyond agreed terms. Of course some businesses are waiting a lot longer. In total, almost £24 billion is owed at any one time to Britain’s small businesses, or £27,000 per business. Small firms also waste a great deal of time per year chasing payments that could instead be used to grow their businesses.
The Forum of Private Business was instrumental in lobbying for the introduction of the Late Payment of Commercial Debts (Interest) Act 1998, which allows firms to charge interest on late payments. It also played a key part in securing the Prompt Payment Code set up by the previous government in the hope of setting in motion prompt payment from the top of the supply chain. Neither has yet succeeded in preventing late payment and unilateral, retrospective changes to terms and conditions by large companies.
In fact, late payment is increasing across the board. Many large companies act with impunity when withholding payment from their smaller suppliers. In 2011, 53% of Britain's SMEs experienced problems with late payment, up from 43% in 2010.
Following the Forum’s recent work a debate was held in Parliament on how best to address the problem. A day later, the Government announced its decision to fast track an EU directive standardising payment at 30-days across the public sector, other than in exceptional circumstances, and at 60 days in the private sector.
The amended EU Late Payments Directive had been passed by the Council of Europe, with the requirement that it be ratified by each individual member state by 2013. The measures will now come into force earlier, in 2012.
The directive states that public and private enterprises must pay invoices within 30 days, with a 60 day limit imposed if individual terms are agreed between suppliers and their customers. Small businesses are also entitled to charge 8% interest and a £35 fee on any late payments.
However, with approximately 37% of SME capital held in overdue payments and in the light of previous initiatives that have fallen flat, there is some scepticism about the new measures.
Small business owners believe large companies will simply continue ignore the payment deadlines and fail to pay any interest and fees. Further, they believe they are being held to ransom but fear that speaking out - or using the courts to chase payments - could make matters worse.
There is a further question - could the directive actually do more harm than good, as far as firms supplying the UK’s public sector are concerned? Currently, most government departments aim to pay 80% of invoices within five working days, with ten-day payment the minimum target.
This public sector initiative has been in place since the days of the previous administration but there are fears it is beginning to slip. In addition, there are concerns that some main contractors are not passing prompt payment along the supply chain.
While the majority of small firms would embrace guaranteed 30 day payments, the Forum believes the UK should continue to lead the way by doing more than just fast-tracking the directive - it should not abandon its ambitious public sector targets.
The FPB is arguing a more thorough approach is required than simply relying on non-binding codes of conduct or under-enforced legislation. For example, as part of the organisation’s Get Britain Trading campaign it has called for evidence of good payment practices to be required from main contractors bidding for public sector work via Pre-Qualifying Questionnaires (PQQs).
In the meantime, there’s always the FPBs Hall of Shame, where large late payers are held to account publicly while business owners’ identities are protected!
www.fpb.org