Businesses ‘could face fines’ for late payment

SMEs Payments

Businesses that fail to pay their suppliers on time could incur a penalty under plans reportedly being considered by Business Secretary Vince Cable.
With small businesses owed more than £30 billion in outstanding payments, the Government is investigating a number of options to tackle what it describes as an ‘unfair’ late payment culture. The proposed scheme is modelled on a system currently used in Sweden. Introducing a late payment levy on companies that do not pay their suppliers within 30 days is one idea being discussed. At present, some small firms are forced to wait up to 180 days for payment, while others face even longer delays.
Other proposals under review include initiatives targeted at specific sectors such as construction, where the issue of late payment is believed to be particularly prevalent.

A Government spokesman said:

‘Vince Cable is concerned about companies struggling because others aren’t settling bills on time. This has an unfair effect on them growing their businesses. He’s looking at what can be done by Government to help’.

It is thought that less than half of Britain’s biggest companies have signed up to the Prompt Payment Code, a voluntary agreement designed to encourage and promote best practice between organisations and their suppliers. Larger companies are characteristically more likely to pay their bills late, and as previous initiatives have failed, the Government is considering harsher procedures to try to tackle the problem. Philip King, chief executive of the Institute of Credit Management, commented that ‘treating suppliers fairly deserves more focus’.

A recent study by the Forum of Private Business (FPB) has revealed the extent to which late payments can adversely affect businesses. 35% of the small firms questioned said they had seen a reduction in profits, while 16% reported a noticeable reduction in turnover as a response to late payment or bad debts.