Government Must Fight Fire With Fire When it Comes to Late Payers

Late last week the Government announced plans to name and shame businesses that fail to treat suppliers fairly, most obviously in terms of late payments.

Late payments are not a novel issue.

Large organisations have leveraged their size for years when it comes to terms of payment.

However, the economic downturn tipped the power balance much further in favour of these companies and, unfortunately, the scales have remained that way, with some companies demanding payment terms of up to 120 days.

This obviously has major implications, not just for the suppliers but for the whole economy.

The survival of any business comes down to its ability to manage cash flow.

Unfortunately, there are few SMEs in the UK that can go two to four months without getting paid.

The result: employees don’t get paid, the suppliers’ suppliers aren’t paid.

In extreme cases these businesses end up closing their doors, meaning more people out of work and less money going back into the economy.

As a leading spot factoring organisation, we work successfully with SMEs in such situations as this on a daily basis.

Securing a major client can be the catalyst they need for huge growth but often they lack financial muscle to finance the initial order and then to carry it on their books for an extended time frame - a time frame over and above what they are used to.

So will naming and shaming large corporates and strongly encouraging them to sign up to the Prompt Payment Code really be enough to drive change, making 30-day payment terms the standard once again?

I very strongly doubt it.

Don’t get me wrong it’s a great place to start but this is an issue of money.

By extending their payment terms, big businesses have more working capital to play with for longer.

In order to truly counter late payment the Government must fight fire with fire, imposing notable fines and sanctions on those organisations that repeatedly offend the code that will make them take notice and negate the benefits of extending their terms of payment.

Credit must be given to the Government for the measures it has taken in recent years to support SMEs and help them gain access to working capital - but bigger, bolder steps are required if we want to see real change.