Charlie Elphicke is the Member of Parliament for Dover and Deal. Follow Charlie on Twitter.
Late payment is a big issue for small businesses. It costs jobs. It drives companies under. It harms growth. My last article looked at steps the Government is taking to get the public sector paying on time. In this article I am focussing on what more can be done to get the private sector, especially big businesses, paying on time. It’s a good move for the Government to ask big businesses to sign up to a voluntary code, yet further action should be taken.
For example, and as I argue in detail below: reform the Late Payment of Commercial Debts Regulations, tighten up the Prompt Payment Code so signatories must pay within 60 days and, more radically, set up a “Bank of Prompt Payment” to chase big businesses for late payments without repercussions on small businesses.
Small businesses need to maintain cash flow in order to stay afloat. They lack the cash reserves which big businesses have. So it’s a real concern when large businesses fail to pay smaller businesses on time. In the most recent Federation of Small Businesses (FSB) survey, 57% of small businesses reported late payments from other businesses. This was almost double the previous survey which showed 34% of small businesses suffering late payments from other businesses. More importantly, the figure was 60% when it came to big businesses.
The Government, as suggested by the FSB, is encouraging big businesses to sign up to the Prompt Payment Code. It is using the threat of naming and shaming to encourage businesses to join, and it has had real success with this campaign. Over 75% of the FTSE 100 have signed up to the code, and the number of FTSE 350 companies signed up has tripled.
Yet the Prompt Payment Code is no silver bullet - especially as signatories only have to pay within the time period set out in the contract. This has led to stories of big businesses which are Prompt Payment Code signatories, including long payment periods in their contracts. One company is said to have introduced 120 day payment terms in their contracts. That’s four months. Firms are able to access payments earlier than this, but are subject to a fee. Such moves may be within the letter of the Code, yet are clearly against its spirit and are totally unacceptable.